BRACE IRON & STEEL P.LTD,NEW DELHI vs. ADDL.CIT, SPECIAL RANGE-2,, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES “A” : DELHI [THROUGH VIDEO CONFERENCING] BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND Ms. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA.No.8617/Del./2019 Assessment Year 2015-2016 M/s. Brace Iron & Steel The Addl. Commissioner Pvt. Ltd., D2, 5th Floor, of Income Tax, Southern Park, Saket vs. Special Range-2, Place, New Delhi. C.R. Building, PIN – 110017 PAN AAECB9347C New Delhi. (Appellant) (Respondent)

Shri S.K. Tulsiyan, Advocate Ms. Bhoomija Verma, Advocate For Assessee : Shri Lakshya Budhira, C.A. Ms. Ananya Rath, Advocate For Revenue : Shri Satpal Gulati, CIT-DR

Date of Hearing : 01.06.2021 Date of Pronouncement : 03.08.2021 ORDER PER R.K. PANDA, A.M. This appeal filed by the Assessee is directed against the Order Dated 13.09.2019 of the Ld. CIT(A)-2, New Delhi, relating to A.Y. 2015-2016.

2 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 2. Facts of the case, in brief, are that the assessee is a Company engaged in the business of Service Sector. It filed its return of income on 30.09.2015 declaring loss of Rs.72,10,52,562/-. During the course of assessment proceedings, the A.O. noted that assessee has claimed depreciation of Rs.71,43,75,000/- on plant and machinery claimed to have been purchased during the year. He observed from the Tax Audit Report for the A.Y. 2015-2016 that the said asset was put to use on 24.02.2020. He, therefore, asked the assessee to substantiate its claim of depreciation by way of adequate documentary evidences.

2.1. The assessee, in response to the same, submitted that it had purchased the plant and machinery i.e., Oxygen Plant from M/s. Bhushan Steel Limited [“M/s. BSL” in short] at an amount of Rs.952,50,00,000/- during the year under consideration. The assessee filed an “Agreement to Transfer Certain Equipments” executed by the assessee with M/s. BSL on 23.02.2015. From the said agreement, the A.O. noted that assessee intended to acquire certain equipments from M/s. BSL for Rs.1000,12,50,000/-. He

3 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. noted that the assessee immediately on “Transfer” of the asset on 23.02.2015 vide “Agreement to Sale”, again leased back the said assets to its original owner i.e., M/s. BSL and in this process the assessee has claimed to have earned Rs.2,13,10,000/- on account of lease of the said asset during the year.

2.2. The A.O, therefore, proceeded to examine the claim of depreciation on the said ‘Plant and Machinery’ and noted the following :

(A) The assessee company has no financial worth since its paid-up share capital is only Rs.1 lakh for A.Ys. 2013-2014 to 2015-2016 and it had absolutely no assets and had no business activity prior to its decision to purchase the Plant and Machinery of M/s. Bhushan Steel Limited at the end of F.Y. 2014-2015.

(B) The assessee company did not have any actual business activity since its inception till

4 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. acquisition of Plant and Machinery from M/s. Bhushan Steel Limited.

(C) The assessee company was a non-functional entity existing merely on paper when it decided to purchase huge Plant and Machinery worth Rs.1000 crores from M/s. Bhushan Steel Limited.

(D) It defies every sense of logic and business prudence that a company having no capital, no assets, no investments and no prior business experience, decided to take Term Loan of Rs.850 Crores and raise Rs.150 Crores fund by way of issuance of Compulsory Convertible Debentures to purchase certain Equipments of M/s. Bhushan Steel Limited, which formed Plant and Machinery of Oxygen Plants at a cost of Rs.1000 crores.

(E) It defies all sense of logic that the assessee company having its registered office in New Delhi and having no functional business activity, suddenly decided to purchase certain equipments

5 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. of 4 Oxygen Plants of M/s. Bhushan Steel Limited located at Orissa and then immediately leased it back to M/s. Bhushan Steel Limited.

(F) It is even more surprising that the assessee company instead of purchasing the complete, functional and operational Oxygen Plants, which would have included the land, building, civil work, and other necessary capital installations accompanying the said equipments, chose to purchase only certain equipments which formed part of these Oxygen Plants. Since these equipments required necessary accompaniments in the form of Building, civil work, and other installations for being made functional & operational, such a piecemeal purchase made by the assessee, did not have any business sense. Further* this clearly showed that the assessee never intended to use these assets in future. Therefore, it is very clear that the said

6 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. purchase was meant only to be on paper, in actual sense, the assets never changed their location, and they remained with their original owner who continued to use them. The Oxygen Plants are of vital use in Steel Plants and therefore, it is clear that it was never the intention of M/s Bhushan Steel Limited to part with the assets under question

(G) Examination of assets hypothecation documents with the State Bank of India lead to the vital revelation that while the book value of said “Equipments” as on 31.10.2014 [as Certified by M/s. Bhushan Steel Limited to the SBI] was Rs.437.47 Crores, the assessee had purchased the same at Rs.1000 Crores from M/s. Bhushan Steel Limited as per the “Agreement of Sale” submitted by the assessee. He observed that while “Plant and machinery” of the oxygen Plants were of value Rs.437 crores, the remaining land, Building, civil work and pre-

7 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. operative capital expenses formed the remaining Rs.563 crores, which were not transferred to the assessee. The Agreement to sale executed between the parties was meant only for certain equipments, and not the land, building and the ancillary infrastructure.

(H) The asset hypothecation documents with the State Bank of India lead to another startling revelation that the assessee had incurred a debt over Rs.850 crores to purchase equipments which were worth Rs.437.47 crores, and these assets were not even transferred by way of registered sale deed.

(I) The valuation report and C.A. Certificate submitted by M/s. BSL before the State Bank of India for hypothecation of assets showed that none of these Oxygen Plants were being actually utilised by M/s. BSL for business purposes

8 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. during the assessment year under consideration. The A.O. tabulated the following details :

Details of Date of Commissioning of Whether being used for the Plant Plant business. November, 2009 Not in operation since 340 TPD September, 2014. Over 5 Years Old. May, 2010 Not in operation since 405 TPD September, 2014. 5 Year Old It was yet to be made 1120 TPD -- operational, yet to undertake trial run. 1200 TPD -- Under trial run.

2.2.1. The A.O. noted that M/s. BSL vide reply Dated 22.12.2017 has claimed that the 340 TPD and 405 TPD plants were capitalized on 27.03.2011 and 1120 TPD and 1200 TPD plants were capitalized on 17.02.2015. He noted that even this claim of M/s. BSL is clearly contradictory to that submitted to the Bank.

2.2.3. He further noted that despite being asked by him, the assessee has not submitted the actual value of the said equipment along with WDV in the books of account of M/s. BSL as on 31.03.2014 on the date of supposed transfer. M/s. BSL has also not responded to the above query, despite being specifically asked vide summons issued

9 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. by him. He, therefore, inferred that M/s. BSL and the Assessee have been wilfully evading the queries regarding original cost of the asset and, therefore, value on the date of the transfer. In view of the above, the A.O. held that the so- called purchase of equipment by the assessee from M/s. BSL was not a genuine business transaction. The modus operandi adopted by the assessee company in collusion with M/s. BSL was to transfer the ownership of the second hand depreciated equipments whose value was Rs.437 crores, on paper to the assessee, at inflated cost of Rs.1000 crores so that higher rate of depreciation could be claimed on the same assets by the assessee. He, therefore, asked the assessee to show cause as to why the depreciation so claimed should not be disallowed as the assessee was not genuine owner of the assets.

2.3. Rejecting the various explanations given by the assessee and relying on various decisions, the A.O. held that the transaction between the Assessee and M/s. BSL for the so-called purchase of equipments and its immediate lease back, was not genuine business transaction, but,

10 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. rather an in genuine subterfuge on the part of the assessee and M/s. BSL to claim depreciation at higher value on re- computed asset, by recording the following conclusion :

“4.10. Conclusions sought to be drawn :

11 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. despite having no real worth, sought to purchase second hand Plant & Machinery of M/s Bhushan Steel Limited at an inflated cost of Rs.1000 Crores, when the actual book value, of the said Plant & Machinery in the books of M/s Bhushan Steel Limited (as certified by M/s Bhushan Steei Limited to the State Bank of India) was merely Rs.437 Crores. Thus, the assessee in collusion with M/s Bhushan Steel Limited, falsely inflated the value of these assets in the books of the assessee company, and claimed huge depreciation of Rs.71,43,75,000/- on the said asset.

12 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. fact, proves the Revenue’s contention that the assessee never intended to use these assets.

13 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. the necessary infrastructure to utilize these assets.

14 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. Crores were infused into the Books of M/s Bhushan Steel Limited, on the other hand M/s Bhushan Steel Limited was free from any debt, as the entire debt of Rs. 1000 Crores was the responsibility of assessee company.

15 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. would not even have any re-sale value in market. Even, the effective life of these equipments was not more than 10-15 years. Further, for the repayment of loan, the assessee was totally dependent upon M/s Bhushan Steel Limited. The entire assets were mortgaged with the Banks, and in any eventual failure to re-pay the loan, the assets were to be confiscated by the Banks. Thus, in this deal, there was absolutely no advantage accruing to the assessee, and, no prudent businessman would have entered into a deal which was to its own disadvantage.

16 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. Order Sheet entries dated 06/12/2017, 18/12/2017 and 22/12/2017. It is significantly noteworthy that despite specific query to this effect in final show cause dated 22.12,2017, the assessee has chosen not to reply. The most significant part of the modus operandi was that while M/s Bhushan Steel Limited had acquired these Plant & machinery originally at a certain cost(copy of original bill of purchase of equipments not submitted to this office),on which it had already claimed depreciation for quite a few years, it had conveniently sought to transfer the same depreciated asset at an inflated book value to the assessee, ie, “Equipments” worth Rs,437 Crores were transferred at the value of Rs.1000 Crores, in collusion with the assessee company.”

2.4. The A.O. similarly disallowed the up-front fees of Rs.1,10,82,175/- debited in the P & L A/c on the ground

17 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. that prima facie this expenditure incurred is in the nature of capital expenditure. The A.O. also disallowed interest expenditure of Rs.1,62,10,881/- debited in the P & L A/c on account of loan taken during the year for acquiring the Oxygen Plant on the ground that the assessee had no real business purpose and was merely acting as a conduit for transfer of Rs.1000 crores fund free of debt to M/s. BSL when the assets transferred to the assessee were worth Rs.437 crores only. Since the transaction held by him was not genuine, therefore, the assessee is not entitled to claim the interest expenses on the loan. The A.O, accordingly, determined the total income of the assessee at Rs.2,06,15,490/- as against the total loss as declared by the assessee company in the return of income at Rs.72,10,52,562/-.

18 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. “6.6. The findings of the AO and the submissions of the appellant have been considered. The findings given above make it clear that the appellant has arranged the transaction in a manner to avoid taxes. It has paid a disproportionately high price for the assets having much lesser market value in order to claim depreciation and reduce its income. Further, its financials do not justify such huge investments.

6.7. Apart from these findings, it is also observed that the equipments have not been put to use for appellant’s own business purposes. The appellant has neither a business premises nor an employee nor it has purchased the entire oxygen plant which could be used for business purposes. It has purchased only equipments forming part of the oxygen plant which cannot be utilised in isolation by the appellant without a premises and installation.

19 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 6.8. Further, leasing out equipments is neither the business objective of the appellant nor is coincidental to its business. The only source of income shown by the appellant*" is rental from leased assets. As the appellant has not utilised these equipments for business purposes, it is not entitled for claim of depreciation on the equipments which have been used for earning rentals.

6.9. On the basis of factual matrix, observations and the decisions on sham transactions as quoted above, the addition is confirmed. These grounds are ruled against the appellant.”

“6.12 As discussed in the Ground no. 2 & 3 above, the appellant has neither carried out any business operations nor utilised the machinery for any business purpose. According to the facts of the

20 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. case, it is the claim itself which is under question rather than the nature of the claim. In this situation, the payment of upfront fee does not qualify as business expenditure. This ground is ruled against the appellant.”

“6.13. Ground no. 5:- This ground is directed against addition of Rs.1,62,10,881/- on account of disallowance of interest. The interest has been claimed against the term loan for purchase of the equipments. As decided in Ground no. 4 above, the appellant has neither carried on any business activity nor utilised the equipments for business purposes. In this situation, the interest on loan taken for these equipments does not qualify as business expenditure. This ground is ruled against the appellant.”

21 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 6. Aggrieved with such Order of the Ld. CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds :

“1. That the Ld. A.O. and the Ld. C.I.T.(A) have erred in disallowing the Appellant’s legitimate claim for depreciation of Rs.71,43,75,000/- by holding that the Sale cum Lease back arrangement (SCLB) entered into between the Appellant and M/s Bushan Steel Ltd. (BSL) w.r.t. two oxygen plants (and accessories) is in-genuine in nature - solely on the basis of surmises and conjectures, in complete ignorance of the evidences produced by the Appellant and/or the settled position of Law w.r.t. the depreciation claimed u/s Sec.32 of the Income Tax Act.

22 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. not been put to use for the Appellant’s own business purposes, since the Appellant is not i`n possession of any such factory premises to install the said plant and machinery.

23 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 5. That the Ld. A.O. and the Ld. C.I.T.(A) have erred in disallowing depreciation on the factually incorrect assumption that the Appellant has only purchased certain equipments forming part of the oxygen plant, that allegedly cannot be used on their own without a business premises and installation.

24 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. of the loan, prior to the execution of the term loan taken by the Assessee for the purchase of the Oxygen Plants - on the erroneous basis that the Appellant neither carries out any business operations nor has it utilize the machinery for any business purpose, to be entitled for the claim in the first place.

25 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 9. That the Ld.CIT(A) has sustained the impugned additions/disallowances in an erroneous and illegal manner - where the Ld.CIT(A) has neither rebutted and/or questioned the genuineness/ authenticity of the documentation/evidences available on record, but has merely on the basis of borrowed satisfaction, arrived at the impugned findings purely on surmises, conjectures and some fundamentally incorrect factual assumptions.

26 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 7. The Learned Counsel for the Assessee strongly challenged the Order of Ld. CIT(A) in dismissing the appeal of the assessee. He submitted that the Assessee-Company was incorporated on 29.03.2012. One of the main objects to be pursued by the assessee company on its incorporation is to carry on the business of purchasing, selling, running and letting and lease or hire, all kinds of plants, machinery, tools, Oxygen plants, related auxiliaries and machinery etc., He drew the attention of the Bench to Clause-4 of the Memorandum of Association which reads as under :

“4. To carry on the business of purchasing, selling, running and letting on lease or hire in any part of India or abroad all kinds of plants, machinery, tools, Oxygen plants and related Auxiliaries, cockovan plant, cockovan batteries, its bye product plants along with all its auxiliaries, jigs and fixtures, agricultural machinery, ships, trawlers, vessels, barges, automobiles and vehicles of every kind of description, air conditioning plants,

27 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. aircrafts and electronic equipment of all kinds and descriptions and for this purpose to buy, take on lease or otherwise acquire and hold for improvement, investment, development or trade and sell, lease or otherwise dispose of, all or any of the aforesaid things and to render leasing, consultancy and advisory services to clients in the field of plant and equipment and leasing. Carrying –out operations and maintenance of equipment/ oxygen plants etc., and Carrying out sale of oxygen, other gasses, services.”

7.1. He submitted that M/s Bushan Steel Ltd. [hereinafter referred to as “M/s BSL”] underwent Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016 and was acquired by Bamnipal Steel Ltd., a wholly owned subsidiary of Tata Steel Ltd and was subsequently renamed as Tata Steel BSL Ltd. with effect from November 27, 2018. However, even prior to the undergoing insolvency, M/s BSL had availed financial

28 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. assistance in the form of secured term loan, secured working capital loans and other secured fund and non-fund based facilities from various Banks/Financial Institutions [hereinafter referred to as “Lenders” ]. He submitted that in August 2014 the decisions taken at the meeting of the Lenders, required that as a part of the deleveraging exercise, the Oxygen Plants of 1120 and 1200 TPD with accessories and Oxygen Plant of 340 & 405 TPD with accessories, which are part of the integrated steel facility at Mermandali Orissa, ought to be subject to a “Sale cum Lease Back” arrangement. He submitted that the Lenders of [then] M/s. BSL thereafter issued an NOC on 21.02.2015 permitting it to execute such a “Sale cum Lease Back” Agreement with the Assessee on the condition that the interest over the lease for the 4 Oxygen Plants shall be charged for the benefit of the Lenders. In furtherance to the same, the Assesses and (then) M/s BSL entered into an "Agreement to Transfer Certain Equipment” executed on 23.02.2015 [referred to as the Asset Purchase Agreement, copy of which is placed at Pages-184-195 of the Paper Book] for the

29 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. purchase of “Plant and Machinery” comprising of Oxygen Plants of 1120 & 1200 TPD with accessories and Oxygen Plants of 340 & 405 TPD with accessories [Referred to Schedule-1 of the Asset Purchase Agreement, Copy of which is placed at Pages.192-194 of the paper book] [Hereinafter jointly referred to as “Assets”] from M/s BSL for an aggregate consideration of Rs.10,00,12,50.000/- [Referred to Cl.3.1 of the Asset Purchase Agreement at Page-186 of the paper book]. The Learned Counsel for the Assessee further submitted that the purchase of the same by the Assessee was financed partly through loans [Hereinafter referred to as the “Common Loan Agreement” Dated 26.02.2015, Copy placed at Pages 196-314 of the Paper Book] obtained from the Bank/NBFCs against hypothecation of the said Assets [purchased from M/s BSL] to raise Rs.850 crores in debt, and the balance was financed through the issuance of Compulsorily Convertible Debentures that was invested by SREI Alternative Investment Trust - Bharat Nirman Fund to the tune of

30 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. Rs.149 crores. Further, equity of Rs.1 crore was invested into the Assessee Company by Bharat Nirman Fund.

7.2. He submitted that SREI Alternative Investment Trust Bharat Nirman Fund [belonging to the SREI Infrastructure Group] is the holding company of the Assessee. Being one of India’s largest and leading “Asset Finance and Leasing” institutions, the SREI Infrastructure Group, enter into a multitude of such “Sale cum Lease Back” transactions and/or other similar [Finance and/or Leasing] transactions in the infrastructural sector. Referring to paper book pages 315 to 334, he submitted that a simultaneous Lease Agreement Dated 26.02.2015 was entered into between the Assesses and (then) M/s BSL wherein the Assets, comprising of the 4 Oxygen Plants along with the allied accessories as found in Schedule-I of the Lease Agreement were leased-out by the Assessee to (then) M/s BSL, for a period of 10 years [along with the option of renewal available to the lessee for a further period of 5

31 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. years] at the agreed monthly lease rental specified in Schedule-2 of the Lease Agreement.

7.3. He submitted that a “Sale –cum- Lease Back” transaction is one where the owner of an asset engaged in manufacturing activities [who subsequently becomes the Lessee] sells that asset at market value [as per Approved Valuer's Report] and acquires it back from the purchaser [who subsequently becomes the Lessor] on lease. Here, the SCLB transaction is completed without effecting delivery of the concerned asset. In other words, the asset in question is first purchased by the buyer and almost simultaneously leased back to the seller, who thereafter holds and uses the same in its respective capacity. The erstwhile owner thus becomes the lessee after the lease.

7.4. He submitted that for the A.Y. 2015-2016. the Assessee, having entered into the aforesaid SCLB, originally claimed a depreciation of Rs.71,43.75,000/- that was later revised to Rs.68.84,30,676/- [based on the Written Down Value of the Assets]. The claim for depreciation was made

32 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. u/s 32 of the I.T. Act, 1961 read with Explanation 4A of Sec.43(1) of the I.T. Act, 1961.

7.5. So far as the allegation of the A.O. that the ‘so called’ purchase of the Assets from M/s BSL was not a genuine business transaction, and was in fact, a modus operandi adopted by the Assessee in collusion with M/s BSL to merely transfer the ownership of the second hand depreciated equipment that valued only Rs.437 crores for an inflated value of (about) Rs.1000 crores simply, so that a higher rate of depreciation could be claimed is concerned, he submitted that the A.O, has purely on suspicion, surmises and conjectures held the SCLB arrangement with M/s BSL to be in the nature of a mere paper transaction, and, therefore dubious and in-genuine in nature without effectively questioning the evidences and/or the documentation on record and/or the intention of the parties to the said SCLB arrangement. He submitted that the Ld. CIT(A) has upheld/sustained the impugned addition(s)/ disallowance(s) made by the A.O. by merely reiterating the

33 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. findings of the A.O. without considering and or rebutting the very detailed submissions filed before him.

7.6. The Learned Counsel for the Assessee referring to the decision of Hon’ble Jurisdictional Delhi High Court in the case of M/s. Brace Iron And Steel Pvt. Ltd., vs., Tata Steels BSL Ltd., in OMP(I)(COMM) 285/2020 Dated 14.12.2020 submitted that the SCBL arrangement with M/s BSL has been held to be authentic and within the four corners of the Law by the Hon’ble Jurisdictional Delhi High Court where the facts of the case pertain to this exact SCBL transaction that was entered into by the Assessee and (then) M/s. BSL in the year 2015, which the A.O. and the Ld. CIT(A) has claimed to be a “sham transaction”. The Learned Counsel for the Assessee drew the attention of the Bench to Para Nos.3 and 4 of the said decision which reads as under:

"3. The respondent prior to undergoing insolvency and resolution process had availed financial assistance in the form of secured term loan, secured working capital loans and other secured fund and non fund

34 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. based facilities front various Banks / Financial Institutions t 'Lenders for shorn Subsequently as part of deleveraging exercise and decisions taken at the meeting of Lenders of the respondent held on August 18. 2014, the respondent was required to monetize four oxygen plants having capacity of 120(1,1120:405 and 340 tom per day (TPD) ('Oxygen Plants for short), which are part of integrated steel facility at Menmuuhdi. Odisha (‘Integrated Steel Facility for short) through Sale and Lease Back Arrangement.

35 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 7.6.1. He submitted that at Para-8 of the Decision, the Hon'ble Delhi High Court has reproduced certain paragraphs of the very same Lease Agreement dated 26.02.2015 entered into between the Assessee and (then) M/s BSL, the copy of which is attached herewith at Pages- 315-334 of the Paper Book.

7.6.2. He submitted that at Para-9 and Para-10 of the decision the Hon’ble Delhi High Court further states certain facts vis-a-vis the Lease Agreement Dated 26.02.2015, to solidify the genuineness of the SCBI. Arrangement which reads as under :

"9. It is stated by the petitioner that the Lease Agreement was structured to ensure that the interests of the Lenders are secured and the respondent has an unconditional obligation to pay the agreed rent amount without an option to excuse non-payment under Clause 5 thereof. The Oxygen Plants were leased out as mandated by the Lenders for a monthly consideration of Rs.15 Crores, exclusive of taxes, for the period ending

36 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. on March 31, 2020 and Rs.18 Crores. exclusive of taxes, for the remaining term of the lease, thereafter, i.e., April 1, 2021 onwards

7.6.3. Referring to Para-11 of the said order he submitted that as per Clause-6.3(a) of the Lease Agreement, subject to the timely payments of the rent agreed upon, the Lessee shall enjoy quiet, peaceful use. enjoyment and possession of the Assets, further, as per Cl. 5.2., the Lessee was strictly obligated to pay timely rent notwithstanding any other clause of the lease Agreement.

37 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 7.6.4. Referring to Para-15 read with Para-17 of the Decision, he submitted that the same brings to the fore the very bone of contention that has led to the present Petition before the Hon’ble Delhi High Court. The Learned Counsel for the Assessee draw the attention of the Bench to the same para which reads as under :

“15. It is stated by the petitioner that since December, 2019 the respondent started raising certain non-maintainable and illegal issues with the petitioner and subsequently from March. 2020 stopped complying with its legal and contractual obligations of timely rental payments, thereby committing fundamental breach of the Lease Agreement and crippling the petitioner from timely servicing its loans. It is also stated that the respondent has forced the petitioner to opt for moratorium on its bank dues, thereby increasing its liability. ….. ….. ….. …… 17. As per the petitioner, the respondent for the first time demanded, for a payment of

38 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. Rs.41.79.48.852/- towards repair and maintenance of the leased equipment vide letter dated June 23, 2020; (ii) a payment of Rs.10,19,91,600/- towards alleged outstanding for a period prior to CIRP vide its letter dated July 5, 2020 That apart, it is stated by the petitioner that it is on the basis of these assertions that the respondent started excusing its defaults in payment of rent under the Lease Agreement "

7.6.5. The Learned Counsel for the Assessee submitted that although the default in rental payments by the lessee is not the issue at hand before this Hon’ble Tribunal, however, it is now evident that the factual basis of both the present appeal and Decision rendered by the Hon’ble Delhi High Court are one and the same, since they originate from the very same Lease Agreement dt.26.02.2015.

7.6.6. Referring to Paras-38 and 39 of the Decision, he submitted that the issue of the Lease Agreement being the sole asset and only source of revenue of the Assessee/ Petitioner has been brought to the Court’s knowledge, and

39 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. the fact that the non-payment of rentals by the Respondent adversely affects the Assessee/Petitioner’s capability to service its loans, thereby causing grave prejudice to the assets and credibility of the Assesssee-Petitioner has also been pointed to the Court. It was further brought to Court's knowledge that the SCBL arrangement is subject to GST on the Assesses/Petitioners part despite the default of the Respondent.

7.6.7. Referring to Para-47 of the decision of the Hon’ble High Court, the Learned Counsel for the Assessee submitted that the Lease Agreement was not at Arms Length was taken before the Court by the respondents and for this purpose he drew the attention of the Bench to Para- 47 of the Order which reads as under :

"47. On the merits, it is submitted by the Counsels that this entire transaction was clearly not at an arm's length but rather a friendly one which has led to payments of exaggerated amounts as lease rentals that were artificially fixed to meet the requirement of

40 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. INR 1000 Crore (sale price), making it further into the nature of a financial lease. In this regard, they stated that prior to February 13, 2015, erstwhile Bhushan Steel Limited had the ownership of Oxygen Plants and in order to provide funds to erstwhile Promoters of Bhushan Steel Limited, the Joint Lender Forum ( ‘JLF’ for short) gave NOC for the sale and lease back of Oxygen Plants. JLF approved that funds to the tune of INR 1000 Crore would be infused from sale of this Oxygen Plants. Since the erstwhile promoters did not want to sell the Oxygen Plants to any outside entity as it would adversely affect the running of the steel plant, they identified one of their controlled entities, i.e., Brace Iron and Steel Private Limited (current petitioner). It is submitted that the four Oxygen Plants were purchased by ‘SREI Infrastructure Limited' through the Petitioner at a consideration amount of INR 1000 Crore and given back on lease to erstwhile Bhushan Steel Limited (current Respondent) against the payment of monthly lease rent. Lease Agreement under Clause 5.1 read

41 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. with Schedule 2 provides for a monthly lease rental of INR 15 Crones till March 31, 2020 and subsequently INR 18 Crores excluding the applicable taxes. The transaction, when entered into by the erstwhile Bhushan Steel Limited, was not as per the market value of leased equipment and that it was primarily entered into for the reason that an amount of INR 1000 Crore was needed, lest erstwhile Bhushan Steel Limited would have turned into a Non-Performing Asset. It is submitted that keeping these considerations in mind, rentals were pegged to the loan amount / finance cost, and hence do not represent the true and correct lease rental amount as per the prevailing market standard '

7.6.8. The Learned Counsel for the Assessee drew the attention of the Bench to the finding of Hon’ble Delhi High Court which starts from Para-65 of the Decision, where the said para summarises the arguments made by both parties with reference to the maintainability of the present petition under Section 9 of the Arbitration and

42 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. Conciliation Act as well as on merits. Referring to following paragraphs of the Order, the Learned Counsel for the Assessee submitted that after giving due consideration to the arguments of both sides, the Hon’ble Delhi High Court has held in favour of the Assesese-Petitioner, by observing as under :

“68. Mr. Sibal is right in relying upon the Clauses 5.1 and 5.2 of the Lease Agreement to contend that there is an admitted obligation to pay lease rent on the part of the respondent. In fact I note, the respondent on taking over the management of the BSL for the period between May 18, 2018 to February 29, 2020, had paid the lease rent to the petitioner and also deposited the GST with the public authority.

43 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. was realised by the respondent that Rs.18 Crores per month leased rental is not in accordance with prevalent market standard, but is far excess of it. ………. 72. As stated above, there is a clear stipulation in the Lease Agreement for payment of lease rent at Rs. 15 Crores till March 31, 2020 and Rs.18 Crores w.e.f. April 01, 2020, the said agreement is an admitted document of the parties. It is also an accepted position that the respondent is using the Oxygen Plants. The lease rentals received from the respondent are utilised for servicing the loans taken by petitioner from the Lenders and there is obligation to pay the GST/TDS to the concerned authorities as well. If that be so, there is a prima facie liability on the respondent to pay to the petitioner/Lenders for the usage of the Oxygen Plants in the manner stipulated in the Lease Agreement i.e., Clause 5.1 read with Schedule 2.

44 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. Rs.41,79,48,852/- said to be incurred on the plants by the respondent are payable and need to be adjusted against the lease rent payable by the respondent. The same has to be decided; not by this Court but by the Ld. Arbitrator, as decision on such dispute shall amount to a final determination. The Counsels have relied upon the judgments of this Court to contend that no prima facie case has been made out by the petitioner for grant of the reliefs as prayed for. I have perused the said judgments carefully viz., Goodwill Non-Woven Pvt. Ltd. (supra), Avantha Holdings Ltd. (supra) and Nirbhay Pratap Singh (supra). Suffice to state that this Court in the facts and circumstance of those cases refused to exercise its power under Section 9 of the Act.

45 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. per the lease deed from November 2015 till April 2016……

46 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. Lender Bank with applicable interest within six weeks from today.

7.6.9. The Learned Counsel for the Assessee submitted that in view of the aforesaid Decision of the Hon’ble Delhi High Court it becomes evident that the various allegations of the Department do not stand in the light of facts and findings of the Hon’ble Delhi High Court that has clearly upheld the validity and veracity of the Lease Agreement Dated 26.02.2015 and the terms stipulated therein holding the same to be binding on both parties, where the rent stipulated therein is prima facie payable by the Respondent to the Assessee/Petitioner.

7.6.10. He submitted that the very reasoning adopted by the A.O. to show the existence of an alleged

47 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. modus operandi/collusion between (then) M/s. BSL and the Assessee, do not survive, when the entire factual background of the why the SCBL was entered into has been discussed by the Hon’ble Delhi High Court along with the terms of the Lease Agreement Dated 26.02.2015, to uphold the transaction as valid, in spite of the fact that the respondent therein had also raised the exact plea as is being taken by the A.O. herein, i.e., that the transaction was not at arm’s length and has thus led to exaggerated amounts being paid as lease rentals that were artificially fixed to meet the requirement of INR 1000 Crore (sale price).

7.6.11. So far as the merits of the case is concerned, Learned Counsel for the Assessee referring to Clause-2.1 of the Lease Agreement submitted that the Lease Agreement entered into is in the nature of an “operating lease” where the idea is not to finance the lessee, but to enable the lessee to operate the asset and earn profits, and where the assessee-lessor would be entitled to depreciation on the asset leased out since his business would be that of leasing and not mere money-lending. As against this arrangement,

48 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. is the concept of a finance lease, where the lessee is entitled to depreciation in respect of asset leased out. The fact that the present Lease Arrangement is treated as an "operating lease” is also visible from Clauses-9.1, 9.2, and 9.3. of the Lease Agreement wherefrom it is clear that the Assesses is the qualified and unequivocal owner of the Assets. Furthermore, (then) M/s BSL in its Annual Report of the Financial Year ending 31.03.2015 [Pages 80-183 of the Paper Book] has at Note No.51 [At Page-141 of the Paper Book] categorically outlined the sold equipment [being 4 Oxygen Plants with accessories] as being taken over by (then) M/s BSL under an “operating lease” for a period of 10 years from 26.02.2015. Thus, the assessee, in his capacity as the lessor-owner is entitled to claim depreciation under section 32 of the I.T. Act, 1961 which allows for depreciation on specified tangible assets and intangible assets, when such assets are owned, wholly or partly, by the assessee and are used for the purpose of business or profession carried on by the said assessee. Referring to the Asset Purchase Agreement Dated 23.02.2015 [Copy placed

49 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. at Pages 184-195 of the Paper Book], he submitted that since the Assets involved herein are indeed owned by the assessee and since the assets are indeed utilized for the purpose of business of the Assessee [since the Assessee Company is in the business of leasing assets, as visible from its MOA], therefore, the requirement of Section 32 stands satisfied, notwithstanding the non-usage of these Assets by the Assessee itself, as the Section only requires that the assessee must use the assets for the ‘purposes of business’ and does not mandate usage of the asset by the assessee itself. For the above proposition, the Learned Counsel for the Assessee relied upon the following decisions :

50 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 3. I.C.D.S. Ltd., vs., CIT, Mysore and Others vide Judgment Dated 14.01.2013 MANU/SC/0028/2013.

Judgment of Hon’ble Delhi High Court in the case of 4. CIT vs., Reetu Finlease (P) Ltd., vide Judgment Dated 09.01.2006 MANU/DE/8140/2006.

7.6.12. The Learned Counsel for the Assessee submitted that as per Explanation 4A of Sec.43(1) of the I.T. Act, in the case of such a SCBL transaction, the lessor (new owner) is entitled to claim depreciation at the Written Down Value of the Assets in the hands of the previous owner, at the time of the sale. The finance (No. 2) Act, 1996 introduced Explanation (4A) to section 43(1) of the I.T. Act to specifically address the issue of “sale and lease back”

51 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. arrangements/transactions. The very mention of an SCLB transaction in Explanation 4A is a recognition of the position that all sale and lease back transactions cannot be held to be motivated only by tax evasion. Tax planning means avoidance (not evasion) of tax by planning the affairs within four corners of the law. Therefore the Assessee has rightly revised the original depreciation claimed of Rs.71,43,75,000/-(in the A.Y. 2015-2016) to Rs.68,8430,676/- reflected in the AY 2018-2019) on the WDV of the Assets for the A.Y. 2015-2016.

7.6.13. He submitted that the original depreciation of Rs.71,43,75,000/-that was claimed for the AY 2015-2016 (and which was disallowed by the Ld. A.O.) was on the book value of the Assets. Referring to Page-12 of the Schedule ‘Business Profession’ of the Income Tax Return and Computation of Income for the A.Y. 2015-2016 and Page-56 of the Original Income Tax Return for A.Y. 2018-2019, Pg.56 of the revised Income Tax Return and the revised Computation of Income for A.Y. 2018-2019, annexed to the

52 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. submission, the Learned Counsel for the Assessee drew the attention of the Bench to the table below and submitted that the claim of depreciation was later on reworked by the Assessee to be a sum of Rs.68,84,30,676/- on the basis of WDV of the assets.

Written Down Date put to Assets Original Cost Value use Oxygen Plant of 1120 & 1200 TPD Rs.849,24,73,177 Rs.849,24,73,177 17.02.2015 with accessories Oxygen Plant of 340 & 405 Rs.120,86,67,595 Rs.68,66,02,504 27.03.2015 TPD with accessories

Rs.970,11,40,772 Rs.917,90,75,681 TOTAL

7.6.14. He submitted that this reworked claim of depreciation of Rs.68,84,30,676/- had been accounted for in AY 2018-2019. where the assessment and computation of the Assessee has been revised by taking the impact of

53 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. depreciation claimed on the WDY of the Assets. The same is also evident and visible from the requisite extracts of the ITRs and Computation of Income for the AY 2015-2016 and AY 2018-2019 (respectively). Although the data is already available with the Department, the Learned Counsel for the Assessee referred to the following documents for the sake of brevity and convenience.

• Copy of the relevant extract of the complete ITR for the AY 2015-16, annexed at Pages 1and 2 to the written submission.

• Copy of the computation of the return for the AY 2015- 16 annexed at Page-3 to the written submission.

• Copy of the relevant extract of the complete ITR (Original) for the AY 2018-19, annexed at Pages-4 and 5 to the written submission.

• Copy of the relevant extract of the complete ITR (Revised) for the AY 2018-19. annexed at Pages-6 and 7 to the written submission.

• Copy of the revised computation tor the AY 2018-19. annexed at Pages-8-9 to the written submission.

54 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 7.6.15 He submitted that the difference between the original depreciation claimed in AY 2015-2016 and the reworked claimed (accounted for in the AY 2018-2019) is as follows :

Depreciation claimed as per sale Rs.71,43,75,000/- value. Depreciation claimed as per the Rs.68,84,30,676/- WDV value Difference : Rs. 2,59,44,324/-

7.6.16. He submitted that in spite of the fact that the Assessee has satisfied the ingredients of Sec.32 read with Explanation-4A of See-43(1), in order to eligibly claim depreciation entitled under Law, the A.O. and the Ld. CIT(A) have erroneously held the SCLB arrangement to be a paper transaction that is dubious/in genuine in nature. He submitted that the same is based purely on suspicion, surmises and conjectures, without effectively questioning the evidence(s) and/or the documentation on record and/or the intention of the parties to the said SCLB arrangement. He submitted that unless specific evidence is brought on

55 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. record to controvert the validity and correctness of the documentary evidences produced, the same cannot be rejected by the Revenue.

7.6.17. For the above proposition, the Learned Counsel for the Assessee relied on the following decisions :

Judgment of Hon’ble Supreme Court in the case of 1. Omar Salay Mohammed Salt vs., CIT reported in [1959] 37 ITR 151 [SC] Judgment of Hon’ble Supreme Court in the case of CIT vs., Daulat Ram Rawatmull [1973] 87 ITR 349 2. [SC] Judgment of Hon’ble Supreme Court in the case of Umacharan Shaw & Bros. vs., CIT reported in [1959] 3. 37 ITR 271 [SC] Judgment of Hon’ble Calcutta High Court in the case of CIT vs., Lakshmangarh Estate & Trading Co. 4. Limited in ITA.No.270 of 1999 vide Judgment Dated 07.10.2013.

7.6.18. The Learned Counsel for the Assessee submitted that the A.0. has arrived at this conclusion, without considering that SCBL arrangements are in fact a

56 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. very common undertaking that is entered into in the leasing sector, where the typical advantages of such an SCLB transaction to the lessor, would be a higher return rate, benefit of residual value, predictable and secured return rate, greater ease in handling the seller default, and results in the avoidance of any such usury problems.

7.6.19. He submitted that the Revenue has erred in ignoring that the Assessee Co. had been incorporated with the objective of entering into such leasing arrangements. In line with its main objective, as soon as the Assessee found an attractive business opportunity, it purchased the Assets from (then) M/s BSL and then immediately leased the same back out. In other words, in the case at hand, when the Assessee had realised that (then) BSL was undergoing a financial crunch, it capitalised on the business opportunities and purchased the Assets from the latter by way of a loan (against hypothecation of the Assets), raising compulsory convertible debentures, etc. Since (then) M/s BSL was interested in utilising the Assets involved, the

57 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. same was thus leased back to the latter under an operative lease, in return for an assured and profitable rental income.

7.6.20. He submitted that the Revenue has erred in ignoring that the leasing business does not require any such elaborate infrastructure, and any such multi-location SCLB arrangements can he entered into without the physical movement of the assets, depending on the commercial viability of the said transaction. He submitted that A.O. has not disputed the genuineness of the Asset Purchase Agreement dt.23.02.2015 and the simultaneous Lease Agreement dt.26.02.2015 into between both the parties for the SCLB transaction. Thus the transaction could not be doubted by the A.O. unless there was valid and sufficient material available to support such a conclusion.

7.6.21 The Learned Counsel for the Assessee submitted that the A.O. has made some fundamental errors in understanding the factual context of the ease at hand, which is evidenced from the following points.

58 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. a. The allegation of the A.O. that the total value of the oxygen plants stands at Rs.437 Crs as per the CA certificate, is factually incorrect, since the said CA Certificate Dated 12.12.2014 excerpted at internal Pages-5/19 and 6/19 of the impugned Assessment Order, see [Pages-50 and 51 of the Paper Book] reveals the said value of the oxygen plants to be at Rs.981.68 Crs.

b. The allegation of the A.O. that the Assessee herein has only purchased the oxygen plants, devoid of the building, civil work, and other accompaniments, is factually incorrect since the Assessee herein has purchased both Oxygen Plants and other related equipment and also other ancillary installation equipment. The same is clearly evident from Schedule-I of the Asset Purchase Agreement Dated 23.02.2015, [See Pages 192-194 of the Paper Book], as well as from Schedule-1 of the Lease Agreement Dated

59 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 26.02.2015, [See Pages 331-333 of the Paper Book].

c. The A.O, has further failed to consider the fact depreciation claimed either by (then) M/s BSL or the Assessee under the SCLB transaction would amount to the same, showing that the situation is tax neutral in nature, thus the Assessee Co. cannot in any manner be accused of entering into the SCLB transaction with BSL as a tax evasion mechanism.

7.6.22. He accordingly submitted that this particular SCBL transaction can in no manner be called as a device to avoid the payment of legitimate taxes, when both the intention and the documentation/evidences at hand and which have gone unrefuted by the A.O. point towards the legitimate nature of the SCBL arrangement. The A.O. cannot merely on surmises and conjectures opine that the Assessee has acted in a collusive manner to avoid any form of genuine tax liability.

60 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 7.6.23. The Learned Counsel for the Assessee submitted that it is well within the rights of the Assessee to run its business activities in any such manner that it may deem fit and proper, and so the very allegation that the SCBL transaction is a paper and dubious transaction sans any such conclusive evidence brought on record by the A.O. to that effect, would show that the A.O. is exceeding his/her powers of stepping into the shoes of the business man, and going into the correctness, business prudence and commercial expediency of the decision making process. Thus any such attempt by the A.O. to disregard the intention of the parties, that is supported by the genuine documentation of record, cannot be merely based on individual perceptions. For the above proposition, he relied on the following decisions :

61 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. Judgment Dated 17.03.1967 reported in MANU/ SC/0127/1967 3. Judgment of Hon’ble Supreme Court in the case of JK Woollens Manufactures vs., CIT reported in 72 ITR 612 (SC). Judgment of Hon’ble Supreme Court in the case of 4. S.A. Builders Ltd., vs., CIT, Chandigarh and Ors vide Judgment Dated 14.12.2006 reported in MANU/SC/8798/2006. 5. Judgment of Hon’ble Supreme Court in the case of Commissioner of Wealth Tax, Gujarat-II, Ahmedabad vs., Arvind Narottam (Individual) vide Judgment Dated 09.08.1988 reported in MANU/SC/0109/1988. 6. Judgment of Hon’ble Supreme Court in the case of Shiv Raj Gupta vs., CIT Delhi-IV in C.A.No.12044/2016 vide Order Dated 22.07.2020.

62 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 7.6.24. The Learned Counsel for the Assessee further submitted that the A.O. and the Ld. CIT(A) have in order to buttress their case, relied on several decisions to show that the A.O. is well within the Law on penetrating the corporate veil to determine the real nature of the transaction as a sham or illusion on the basis of surrounding circumstances and human probabilities to opine that the Assessee and (then) BSL had pre-arranged its affairs with reference to the SCBL transaction, in such a way that the Assessee could claim depreciation at a higher value on re- valued assets. He submitted that the ratio of the various decisions of the Hon’ble Supreme Court and the Hon’ble High Court extracted by the A.O, in the Assessment Order, and which have been followed by the Ld. CIT(A) in the Impugned Order, is settled Law which is not being contested/disputed by the Assessee herein. However, the applicability of the said decisions to the case of the Assessee, is erroneous, since as detailed for the facts above, there does not arise any such necessity to lift the corporate veil or consider the surrounding circumstances, or apply the

63 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. principle of preponderance of probabilities - since the A.O. has not even rebutted/questioned the genuineness/ authenticity of the documentation/evidences brought on record by the Assessee, and when the A.O. has made some fundamentally incorrect factual assumptions as to the valuation of the Assets involved, and when the A.O. has completely overlooked the rationale and commercial viability of this SCBL arrangement (that was taken as a business decision by the Assessee as part of its leasing business), and when further, the A.O. has completely ignored the fact that the claimed depreciation, would result in a tax neutral situation had the same been claimed by the Assessee as part of this SBL arrangement or by (then) M/s BSL independently, by not entering into this SCBL arrangement.

7.6.25. He submitted that the very theory of “preponderance of probability” is only applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side. The conclusions have to be drawn based on certain admitted facts and materials and not based on suspicion, surmise

64 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. and conjectures. For the above proposition, he relied upon the decision of Coordinate Bench of the Tribunal in the case of Brij Bhushan Singal and Ors. Vs., ACIT, Central Circle-3 vide Order Dated 07.12.2018 – ITAT Delhi. He accordingly submitted that the case at hand is already covered by the various decisions of the jurisdictional High Court of Delhi and the jurisdictional Delhi Tribunal that have dismissed Departmental contentions that SCBL transactions are a paper transaction when the same is a purely baseless allegation that has been made on surmises and conjectures. He also relied upon the following decisions :

65 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi.

66 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. against the Assessee’s treatment of the same as a Revenue Expenditure. He submitted that the Assessee relies upon Section 36(1)(iii) of the I.T. Act, 1961 – that provides a deduction of the amount of interest in respect of capital borrowed for the purposes of business.

8.1. He submitted that interest as defined u/s 2(28A) of the I.T. Act, 1961. is interest payable in any manner in respect of any moneys borrowed or debt incurred [including deposit, claim or other similar right or obligation] and includes any service fee or other charge in respect of the money borrowed or debt incurred or in respect of any credit facility which has not been utilised. Accordingly, to qualify as an interest the costs should be incurred in connection with the borrowing of funds, and thus since the Assessee herein has made the payment of upfront fee vis-a-vis the Term Loan obtained, the said ‘upfront fee’ does fall within the definition of ‘interest’ and is allowable as a deduction under section 36(1)(iii) of the I.T. Act, 1961.

67 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 8.2. He submitted that it is now a settled law, that ‘upfront fees' can be claimed as revenue expenditure. Referring to the decision of Hon’ble Madras High Court in the case of CIT vs., Meenakshi Mills Ltd., [2007] 290 ITR 107 (Madras), he submitted that the Hon’ble High Court of Madras has opined that, where the assessee (therein) had paid 4.4 lakhs towards 1 per cent upfront fee to the IFCI for availing of loan for purchase of machinery, then the same shall be allowable as a revenue expenditure in light of the decisions of the Hon’ble S.C, in Addl. CIT vs., Akkamamba Textiles Ltd., [1997] 227 ITR 464 and CIT vs., Sivakami Mills Ltd., [1997] 227 ITR 465.

8.3. Referring to the decision of the Hon’ble Supreme Court in the case of Commissioner of Income Tax vs., Rama Multi Tech Ltd., [2017] 80 taxmann.com 375 [SC] the Learned Counsel for the Assessee submitted that the Hon’ble Supreme Court in the said decision has opined that expenditure towards payment of interest on loans taken for setting up industry by assessee and financial charges, upfront fee, professional expenses etc., were all allowable as

68 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. revenue expenditure. He accordingly submitted that the A.O’s treatment of the ‘upfront fees' as a capital expenditure is erroneous, illegal and impermissible in law, that has now been settled by various decisions of the Hon’ble Supreme Court of India, whereby the treatment of ‘upfront fees' as a revenue expenditure has been upheld time and again, thereby also making the Assessee’s claim herein as valid and permissible under the Law.

69 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. claim interest expenses on the Term Loan since the same was in the real sense availed by M/s BSL. He submitted that the interest expenses has been disallowed by the A.O. only on the basis of the illegal and erroneous finding that when the entire SCBL transaction is a colourable and/or dubious device and/or a paper transaction, then the issue of interest expenses incurred with reference to the same also should not be allowed to the Assesses. However, when the Assesses has effectively rebutted the contention(s)/ allegation(s) raised by the Department with reference to the SCBL transaction, then, the issue of claiming the interest expenses as a deductible business expenditure is corollary/ contingent claim that ought to be allowed for the same reasons. He accordingly submitted that the grounds raised by the assessee should be allowed.

70 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. “May it please your honours Brief facts of the case:-

71 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. ownership lies with the lessee in case of financial lease. AO position : 3.1. Assessee is not in the business of leasing of assets. The aforesaid transaction is the solitary instance, (refer para 4.10 sr. no. 1 page 12 of the AO order) Also refer final accounts for preceding years at para 4.3 page 2 of 19 of the AO order. 3.2. Transaction is not genuine as the assets in question can not exist without its accompanying structure. 3.3. It is important to note that assessee did not get the assets in question examined as to whether the same can be dismantled or not? No such expenses debited in profit & loss account. What impact would be there on its value after dismantling? What risks were borne by it while making the deal ? 3.4. Intent was to deleverage the balance sheet- The assessee in its submission accepted the fact that

72 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. the main intent of the sale and lease back was to deleverage the balance sheet. (refer para 4.5, page 8 of 19 of the AO order) So, it was in the nature of finance lease as against operational lease. 3.5. Assets were not being utilized by BSL -Refer para IX page 7 of 19 of the AO order. 3.6. Assessee did not divulge required information regarding the written down value of the assets in question- Para X page 7 of 19 of the AO order. 3.7. Inflated value of the transaction-Refer para VII at page 4 of 19 of the AO order and page 5 of the AO order. Judicial Position : 4.1. Hon’ble bench may duly consider the decision of Special Bench Income Tax Appellate Tribunal - Mumbai in the case of The ICICI Ltd. vs Dy. CIT, Special Range 36 on 14 August, 2003. 4.2. It may be noted that the facts of the case are similar to the facts of the cited case as in cited

73 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. case, the issue involved was whether the instance of sale and lease back was genuine or not ? 4.3. Certain observations of the Special Bench are reproduced here which may be noteworthy : • It was contended that the transaction in truth was a borrowing of monies by the RSEB on the security of the assets, but the documentation had been so prepared as if it was a sale and lease-back arrangement. If it is a simple borrowing on the security of the assets, the assessee would not be entitled to depreciation, • that it is nothing more than a mere finance transaction - and that the entire documentation is a smoke screen to create an illusion as if it is a lease." • The real question would be whether the consideration moving from RSEB to the assessee represents compensation for the use of the monies (as in a finance lease) or represents compensation

74 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. for the use of the assets (as in an operational lease) • The judgment of the Supreme Court in Shaan Finance Pvt. Ltd. (231 ITR 308)(SC) relied on by the assessee is not applicable to the facts of the present case since that decision related to the claim of investment allowance and the business of the assessee was that of leasing only. The other decisions, particularly orders of the Tribunal relied on by the assessee were not applicable to the present case. • In Mcdowell case, His Lordship Justice Ranganath Misra held as under :- (page 171 of the report) "Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of

75 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. every citizen to pay the taxes honestly without resorting to subterfuges.” • There can be no pigeon-holing of the facts in the sense that it cannot always be held that if the facts follow a particular pattern, then the conclusion must be the same. Genuineness of a transaction is something which is to be likened to the soul; the facts merely constitute the body and similarity between the bodies does not ipso facto mean that the souls are also identical. We have perused the orders of the various Benches of the Tribunal cited before us and we generally kind that in each of those cases the Bench was satisfied with the genuineness or otherwise of the SLB transaction, whatever may be their reasons. We would resist the temptation to generalize or to lay down norms in such cases. Norms may be laid down only if it is absolutely necessary to do so. In fact, there can be no common rules for finding out the genuineness of a particular SLB transaction,

76 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. which can be of universal application. Nor can any such norms be exhaustive. However, very broadly and without limiting ourselves to what has been stated in our order, the following may be considered to be relevant factors to be kept in view:- (a) Was there an intention to pass the property in the equipment to the assessee ? (b) Was the equipment identified / ascertained with reasonable clarity ? (c) Was the equipment valued, and if so, whether it was a bona fide valuation ? Was the value inflated? How credible is the report of the valuer, if there is one. (d) What are the terms of the lease ? Is the document more of an arrangement for security for the loan and less of a lease ? (e) Is there any parallel or collateral documentation or correspondence or an understanding between the parties which

77 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. throws doubt on their intention professed by the principal documentation ? (f) What is the conduct of the parties? How transparent has it been ? (g) If the lessee is a public utility undertaking, whether the sale of the equipment would be in conformity with the rationale for its existence and whether it would have an adverse impact on its working ?

These are only some of the factors that one is expected to keep in view in dealing with such cases. They are by no means exhaustive. Any other fact or circumstance which one considers relevant for reaching the soul of the matter must necessarily be taken into account. Ultimately, it is the inference to be drawn on a cumulative consideration of all the facts and circumstances of the case which is material. We have therefore perused the various orders of the Tribunal placed before us only in this perspective viz., whether any

78 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. guidelines or principles of general application could be called from them which could be usefully applied to the cases before us for the purpose of ascertaining the genuineness of the SLB transaction. We have eschewed the temptation "to match the colour of one with the other" and draw our inferences or superficial similarities.

• assessments are not made merely on arithmetical calculations; they are to be made on legal principles. The view to be taken with regard to a particular transaction cannot differ, depending on whether the parties have made a profit or have incurred a loss in the same. The assessments cannot be made solely on the basis of the figures or arithmetical calculations. In the cases before us, in fairness to the income- tax authorities, they have realised this position and have therefore not based their views solely on the arithmetical calculations.

79 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. Case Laws relied by the Appellant –

5.1 Mysore Minerals Ltd.-The question of law framed in the cited case was as under :-

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in rejecting the claim of the assessee for depreciation in respect of the seven houses in respect of which the assessee has not obtained a deed for conveyance from the vendor although it had taken possession and made part payment of the consideration ?”

5.1.1 The above facts of the case do not show any similarity with the facts of the case in hand.

5.2. In the case of Shaan Finance (P) Ltd. relied upon by the appellant, the same is also not applicable to the facts of the case. It is because in the cited case, the issue was regarding Investment Allowance and Development Rebate as per Section 32A(2) and Section 33 of the Act.

80 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 5.3. The appellant relied on the decision of Hon’ble Delhi High Court on the dispute between Tata Steel BSL Limited (respondent) and the assessee (petitioner). As per the facts of the cited case, the respondent on taking over the management of the BSL for the period between May 18, 2018 to February 29, 2020, had paid the lease rent to the petitioner and also deposited the GST with the public authority. However, the dispute on obligation to pay lease rent arose thereafter. It is important to note that the dispute between two parties arose in 2020 which is a later event (refer para 69 of the order) and the question of genuineness of sale and lease back per se which took place in FY 2014-15 was not an issue before the Hon’ble Court. On the other hand, it is noted that the facts captured in this decision do throw light on the issue of responsibility of providing maintenance services and the issue of operational lease vis-à-vis financial lease. These aspects have been discussed below in detail.

81 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. Questions arising on the scheme of Agreement to transfer Certain Equipments and Lease Agreement:-

A. Is there actual handing over/delivery of equipments in this case?

A.1. This agreement was signed between the assessee and BSL for transfer of certain equipments. It may be relevant to take note of the same that the aforesaid agreement does not talk of handing over the possession of equipments or delivery of equipments. Clause-2.2 clearly mentions that it is only an agreement to transfer the equipments and does not convey or transfer the equipments to the purchaser. The relevant clauses are reproduced as under :-

82 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi.

A.2 Thus, it flows from the above that the agreement did not deal with actual transfer of equipments and the assessee did not produce any evidence to showcase that there was handing over of the equipments from seller to purchaser.

A.3. Further, the agreement to sell does specify the specific equipments which are to be transferred. A part of the list as sample is as under :-

83 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi.

A.4. Keeping in mind that all such equipments are part of the oxygen plant which is in operations for number of years by BSL. All these equipments are interconnected and form part of integrated plant. The question arises as to how such equipments could be handed over to the purchaser after dismantling each one out of the integrated oxygen plant along with supporting civil structures? Whether dismantled equipments would have any value left in it? The simple answer is that it is not a feasible option to dismantle the

84 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. equipments for sale of the same and then leasing it back. The lessor has no experience in dealing with such equipments technically or otherwise.

A.5. It is evident that such equipments which are part of integrated oxygen plant could not be handed over to the purchaser as the same are not dismantable and thus, the integrated oxygen plant per se has features of immovable asset as it is well supported and embedded in the civil structure.

A.6 It may be interesting to note that the lease agreement provides that the lessor is the owner of the equipments and in possession of the same. The relevant extracts of the lease agreement are reproduced as under:-

85 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi.

A.7. In view of the discussion at paraA.2 above, it is noted that the agreement to transfer the equipments does not mention about the handover of the equipments. Thus, the question of its possession with the lessor does not arise. Moreover, since the equipments can not be dismantled out of the integrated oxygen plant, therefore, it is not practically feasible to handover such equipments to the purchaser/lessor.

A.8. Further, clause 3 of the lease agreement deals with handing over of the possession of equipments. It may be noted that where the purchaser/lessor did not get possession of equipments as per the discussion above, there can not be case of

86 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. handing over such equipment back to the lessee( seller). Thus, it is evident that the documentation is merely a smoke screen without matching with the real picture on the ground.

B. Whether the lessor was owner of the equipments which is prerequisite for claim of depreciation ?

B.1. SC in the case of Poddar Cement Pvt. Ltd. (226 ITR 625)(SC) where the full rights of an owner recognised by law were held to be (a) power of enjoyment (b) possession, which includes the right to exclude others (c) power to alienate or to charge security and (d) power to leave the asset by will.

B.2 Based on the facts of the case in hand as discussed above, the lessor did not get the possession

87 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. of the equipments at any point of time. Lessor was not having right to possess, right to remove, right to dismantle, right to shift etc. The lessor never took any risk assessment in taking over the equipments. In such a situation, question of ownership with lessor does not arise. Effectively, it is a case where the ownership of equipments always remained with BSL and the arrangement of sale and lease back was to offload the loan from the balance sheet of the lessee.

C. Is it a case of inflated value of equipments claimed to be transferred for sale and lease back?

C.1. At page 6 of the AO order, cost break up of oxygen plant and building is there which shows that plant and machinery costed Rs. 437.47 Cr, civil & structures costed Rs. 252.93 Cr, duties and taxes of Rs. 10.11 Cr and Pre-operative cost of Rs. 273.17 Cr. The total cost comes to Rs. 941 Cr.

C.2. “Agreement to transfer Equipments” no- where talks of transfer of civil and structures (building).

88 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. It only talks of equipmentsas per schedule I of the agreement which constitute plant and machinery. Civil structure is not included in the list as per schedule-I of the agreement. Thus, the AO rightly concluded that the sale consideration has been inflated because where civil structure has not been transferred, the cost for the same can not form part of list of specific equipemnts claimed to have been sold. Accordingly, the equipments have been transacted at Rs. 1000 crore as against its actual worth/cost of Rs. 437.47 Cr.

C.3. It may be added that this fact of inflation of cost of equipments is a part of SFIO complaint and investigation report. The fact that the transaction was not at arm’s length has been duly captured in the Delhi High Court decision at para 66 which reads as under :-

“On merits, it is stated that:

7.1. The entire transaction was clearly not an arm’s length but rather a friendly transaction which has led to payments of exaggerated amounts as lease

89 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. rentals that were artificially fixed to meet the requirement of INR 1000 Crore (sale price), making it further into nature of a financial lease;”

D. Who is responsible for maintenance of equipments ?

D.1. It is relevant to note that the lease agreement (clause 6.1 viii) provides that the lessor would provide maintenance for upkeep of the equipments. However, the assessee has nowhere debited such expenses incurred for maintenance of equipments. Moreover, the assessee is not equipped to provide maintenance services. The lessor (assessee) was not even knowing iota about the technicality of operations of the equipments. Thus, it is not a case of operational lease.

D.2. It is interesting to note that the facts regarding maintenance of equipments is a part of the decision of Hon’ble Delhi High Court where Tata Steel BSL Limited is a respondent and the assessee is a petitioner to settle dispute on payment of lease rentals.

90 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. D.3 The relevant paras of the decision of Hon’ble Delhi High court are reproduced as under :-

“73. At this stage, I may also refer to the plea of the Counsels that despite specific obligation, the petitioner has failed to undertake routine maintenance measures of the Oxygen Plants and keep the same in good working condition in accordance with best industry practice. In support of their submission, they had relied upon the Clause 6.1.(vii) of the Lease Agreement and Clause 6.1.7 of the Common Loan Agreement.

91 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. spares for the plants. In substance, it was their plea that the respondent has incurred expenses to the tune of Rs. 41,79,48,852/- for the upkeep of the plants.

D.4. Para 73 of the aforesaid decision (as reproduced above) clearly mentions that Tata BSL incurred maintenance expenditure on its own and the lessor did not provide maintenance services. The plea taken by the respondent that the petitioner (the assessee) did not comply to the obligation cast on it as per clause 6.1 (vii) of the lease agreement and clause

92 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 6.1.7 of common loan agreement. This particular clause deals with fact of responsibility to maintain the equipments in good working condition and shall undertake routine maintenance of equipments. The relevant extracts of the lease agreement [clause 6.1 (vii)] are reproduced as under :-

D.5. Further at para 74 of the Hon’ble Delhi High Court decision(as reproduced above), the respondent pointed out that the petitioner(the assessee) has failed to even appoint a single technical person to oversee the operation of the Oxygen Plants since inception of the Lease Agreement in 2015. As against this, the petitioner (assessee) took a plea as recorded at para 75 of court decision that the respondent was responsible for routine

93 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. maintenance. It is important to note that the assessee (lessor) itself has denied the responsibility of providing routine maintenance services which is contrary to the terms of clause (vii) as reproduced above (extracted from lease agreement) which provides that the lessor shall maintain the equipments in good working condition and shall undertake routine maintenance of equipments. This shows that the lessor was not providing any maintenance services for upkeep of equipments. Hence, it is not a case of operational lease.

E. Is it a case of Financial lease?

E.1 It is noteworthy that the assessee in its submission accepted the fact that the main intent of the sale and lease back was to deleverage the balance sheet by transfer of designated equipments as well as reducing the loans. It further added that simultaneously it was also able to enjoy the uninterrupted usage of the same. (refer para 4.5, page 8 of 19 of the AO order)

94 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. E.2. The fact is that the alleged sale and lease back is without transfer of assets and the main intent is to reduce the loans in the hands of the seller. Thus, it is a case of financial lease.

E.3. As regards operational lease, the assessee has no wherewithal to manage the same in the absence of technical manpower. The fact of providing routine maintenance by lessor has also been denied by the counsel of petitioner (lessor) before Hon’ble Delhi High Court which is in contradiction to the lease agreement clause 6.1 (vii).

E.4. In light of the above facts, the lessor was not handling any function relating to operations of the equipments and it was not equipped to do the same in the absence of any know how in this case. It did not assume risks associated with the ownership as the lessor never had right of possession and right to remove the equipments.

95 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. E.5. It was a simple case of balance sheet deleveraging and the scheme was at the behest of lenders of BSL(lessee). Thus, effectively, the assessee merely played a role to act as a medium to offload the loan from balance sheet of BSL(Lessee) through sale and lease back and this scheme was the brain child of lenders of BSL to safeguard its financial interests.

E.6. This fact has also been highlighted by TATA BSL before Hon’ble Delhi High Court at para 66 of the decision which reads as under :-

“On merits, it is stated that:

7.1. The entire transaction was clearly not an arm’s length but rather a friendly transaction which has led to payments of exaggerated amounts as lease rentals that were artificially fixed to meet the requirement of INR 1000 Crore (sale price), making it further into nature of a financial lease;”

96 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. E.7. So, it was in the nature of finance lease as against operational lease.

F. Whether the assessee (lessor) and lessee are group concerns?

F.1. In this regard, it may be relevant to take note of para 47 of Hon’ble Delhi High Court decision in respect of dispute between the assessee and Tata BSL group wherein it is mentioned that erstwhile promoters of BSL group did not want to sell the oxygen plants to any outside entity as it would adversely affect the running of the steel plant, they identified one of their controlled entities i.e. Brace Iron and Steel Private Limited. The relevant extracts of para 47 are reproduced as under :-

“47. On the merits, it is submitted by the Counsels that this entire transaction was clearly not at an arm’s length but rather a friendly one which has led to payments of exaggerated amounts as lease rentals that were artificially

97 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. fixed to meet the requirement of INR 1000 Crore (sale price), making it further into the nature of a financial lease. In this regard, they stated that prior to February 13, 2015, erstwhile Bhushan Steel Limited had the ownership of Oxygen Plants and in order to provide funds to erstwhile Promoters of Bhushan Steel Limited, the Joint Lender Forum (‘JLF’, for short) gave NOC for the sale and lease back of Oxygen Plants. JLF approved that funds to the tune of INR 1000 Crore would be infused from sale of this Oxygen Plants. Since the erstwhile promoters did not want to sell the Oxygen Plants to any outside entity as it would adversely affect the running of the steel plant, they identified one of their controlled entities, i.e., Brace Iron and Steel Private Limited (current petitioner)………”

F.2. Thus, the facts as submitted before Hon’ble Delhi High Court show that the assessee was controlled entity of erstwhile promoters of BSL group. The

98 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. assessee being petitioner in the case nowhere contested this fact before Hon’ble Court.”

10.1. So far as the decision of Hon’ble Jurisdictional Delhi High Court on the dispute between the Tata Steel BSL Limited and the Assessee is concerned, he submitted that as per the facts of the said case, the respondent, on taking over the management of the BSL for the period between May 18, 2018 to February 29, 2020, had paid the lease rent to the petitioner and also deposited the GST with the public authority. However, the dispute on obligation to pay lease rent arose thereafter. He submitted that the dispute between two parties arose in 2020 which is a later event [referred to Para-69 of the order] and the question of genuineness of sale and lease back per se which took place in F.Y. 2014-15 was not an issue before the Hon'ble Court. On the other hand, it is noted that the facts captured in this decision do throw light on the issue of responsibility of providing maintenance services and the issue of operational lease vis-a-vis financial lease.

99 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 10.2. Subsequently, the Ld. D.R. filed the following written synopsis which are as under :

“May it please your honours :

100 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 3.1. Decision in the case of Consortium Finance Ltd. vs. Joint Commissioner of Income Tax (30.04.2002 - ITAT Delhi) : MANU/ID/0285/ 2002.

Submission :-

3.1.1 It is relevant to take note of the facts of the cited case. In this regard, it is noted that the assessee in the cited case took a plea that there was no basis or justification to treat the transaction to be collusive in nature since M/s. KPCL was a Government enterprise and there could be no collusion between a Government enterprise and a private company” (refer para 11(ii) of the order).

3.1.2. Keeping this fact in mind, the tribunal held as under:-

“24. Further, a transaction in which one of the parties is the Central Government, a State Government or an undertaking of the said Government then connivance of the nature alleged by the Department has to be ruled out…….

101 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 28. Coming to the sales-tax exemption the notification of the Karnataka Government is dt. 1st March, 1996, i.e., a month prior to the actual transaction and it speaks of all transactions and not the one under consideration. Can it be expected of a State Government to do something, which is not above board and to be part of a tax avoidance scheme engineered between the assessee and one of the State Government”

3.1.3. Thus, it is evident that the decision in this case is clearly influenced due to peculiar feature of transaction where government entity was involved and thus genuineness of the transaction was taken to be sacrosanct. However, the case in hand does not involve transaction with government entity.

3.2. Decision in the case of Cosmos Films Ltd. decided by Hon’ble Delhi High Court;-

3.2.1. The appellant claimed that in the case of Cosmos Films Ltd. (supra), the Hon’ble Delhi H.C. has held that the intention of the parties have to be gathered form the

102 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. words of the agreement in a tangible and objective fashion, and not on any such hypothetical pretext that the assessee held the supposed motive of evading the payment of tax.

3.2.2. Interestingly, vide written submission dated 17/05/2021, inherent contradictions in the agreement to transfer equipments vis-à-vis lease agreement have been highlighted at various paras(A.7 & A.8) of written submission dated 17/05/2021. In such a scenario of conflict in the documentation relied upon by the appellant, the applicability of aforesaid decision of Delhi High Court does not have any relevance.

3.2.3. It is relevant to note that the fundamental principle of judicial interpretation of contracts is that the Court should be concerned with the real substance of the transaction rather than the form of the same. If there are reasons to believe that the form of the transaction and its real substance are not mutually corroborative, the Court

103 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. must not be swayed by the form of the transaction nor by the nomenclature that the parties have given to it.

3.2.4. Hon’ble Delhi High Court in the case of Instalment Supply Limited (ITA NO. 442/2007) held that the real issue and question involved in the present case is whether or not the agreement in question was a finance agreement or an operating lease and the question cannot be decided by merely looking at the title of the agreement or the nomenclature given to the said agreement. The terms and conditions mentioned in the agreement may be relevant but the surrounding circumstances & type and nature of the asset have also to be considered.

4.1 It is argued by the appellant that the CIT-DR has erroneously quoted the passages extracted by the Hon’ble S.C. in Poddar Cement (supra) of a decision belonging to the Hon’ble Patna H.C. (See Para 30 of the

104 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. decision) to then erroneously call the same as the finding of the Hon’ble S.C. 4.2. In this regard, the Hon’ble bench may like to take note that Hon’ble SC categorically observed (para 30 of the order) that “We may usefully extract certain passages from the judgment of the Patna High Court.” This clearly shows that the Hon’ble SC considered it relevant for taking decision in the cited case.

4.3. Further, it is also noteworthy that the concept of “ownership” has been taken from passages from G.W. Paton on Jurisprudence, Dias on Jurisprudence, Stroud's Judicial Dictionary and Pollock on Jurisprudence. In other words, the concept of ownership has been taken from well recognised jurisprudence on the issue. The SC has taken note that from the Roman Law up to the English Law at the present stage, mediaeval stage having been interspersed with different formulae, the position that now juristically emerges is this-

105 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. (a) The power of enjoyment (e.g., the determination of the use to which the res is to be put, the power to deal with produce as he pleases, the power to destroy); (b) Possession which includes the right to exclude others; (c) Power to alienate inter vivos, or to charge as security; (d) Power to leave the res by will

4.4. Para 30 of the order is reproduced for ready reference:-

“30. The Patna High Court has cited this Court's judgment in R.B. Jodha Mal Kuthiala's case (supra) and also number of other judgments of the different High Courts. The High Court had also gone into the concept of 'ownership' and referred to passages from G.W. Paton on Jurisprudence, Dias on Jurisprudence, Stroud's Judicial Dictionary and Pollock on Jurisprudence. We may usefully extract certain

106 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. passages from the judgment of the Patna High Court. …”

10.3. So far as the various decisions relied upon by the Learned Counsel for the Assessee are concerned, he submitted that all those decisions are distinguishable and not applicable to the facts of the present case.

107 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. circumstances of the case. He submitted that various decisions relied upon by the Ld. D.R. are distinguishable and not applicable to the facts of the present case. The Learned Counsel for the Assessee also distinguished the various decisions relied on by the Ld. D.R. by filing the following written synopsis :

AVERMENTS OF THE CIT(DR) IN THE COUNTER COMMENTS OUR RESPONSE DATED 30.05.2021

“Decision in the case of Consortium Finance Ltd. vs. 1. The Special Bench in the case of ICICI Ltd. Joint Commissioner of Income vs. Dy.CIT, Special Range 36 (14.08.2003 - Tax (30.04.2002 - ITAT Delhi): ITAT Mum):MANU/IU/5032/2003 (That the MANU/ID/0285/2002 CIT(DR) is seeking to rely upon) has itself held Submission :- that there could be no pigeonholing of the facts 3.1.1. It is relevant to take note in order to mean that if a particular factual of the facts of the cited case. In this pattern is followed then the conclusion will be regard, it is noted that the assessee the same. The Hon’ble S.B. thereby held that in the cited case took a plea that no common and/or exhaustive rules of there was no basis or justification to treat the transaction to be collusive universal application can be arrived at towards in nature since M/s. KPCL was a finding out the genuineness of an SCBL Government enterprise and there transaction and that each case has to be could be no collusion between a decided on its own merits, upon a cumulative Government enterprise and a considerations of all the material facts and private company” (refer para 11(ii) circumstances of the case. See Para155 of the of the order). said decision.

108 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 3.1.2 Keeping this fact in 2. The Assessee is not relying upon the mind, the tribunal held as decision of Consortium Finance (supra) to under:- submit that (on facts) the present case stands covered by the former. As noted by the “24. Further, a transaction Hon’ble Special Bench in ICIC Ltd. (supra)- no in which one of the parties is the case of an SCBL transaction will be factually Central Government, a State identical, and that each case is to be decided Government or an undertaking of on its own merits. the said Government then In fact the Hon’ble ITAT in Consortium connivance of the nature Finance (supra) has itself held that SCBL alleged by the Department transactions which are a part and parcel of has to be ruled out……. business deals have been viewed with suspicion by the Revenue, and that it must be 28. Coming to the sales-tax emphasised that every transaction has to be exemption the notification of the considered on its own facts. See Para 25. Karnataka Government is dt. 1st March, 1996, i.e., a month prior 3.Thus factual dissimilarities like one party to the actual transaction and it being a Govt party in the case of Consortium speaks of all transactions and Finance (supra) is of little or of no relevance, not the one under consideration. especially when the allegations of the Can it be expected of a State Department in the said case are hugely similar Government to do something, to the line of argument taken by the CIT(DR) which is not above board and herein. This similarity is iterated below: to be part of a tax avoidance scheme engineered between a. Consortium Finance is a limited NBFC, that the assessee and one of the is engaged in the business of hire-purchase, State Government” leasing and trading of shares (See Para 3).

b. As per the Department the nature of the 3.1.3. Thus, it is evident that transaction is a financial transaction, where the decision in this case is clearly the ingredients of Sec.32 have not been influenced due to peculiar feature

109 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. of transaction where government fulfilled since the assets had not come into entity was involved and thus physical possession of the assessee cause the genuineness of the transaction same were affixed to the ground and thus was taken to be sacrosanct. incapable of being transferred (See Para 6, However, the case in hand does Para 9 and Para 20). not involve transaction with c. Intention of M/s KPCL (the Govt. government entity.” party/lessee) was to get finance from the assessee since it was in the red and badly needed resources to run its business. The SCBL was entered into to get the undue benefit of depreciation (See Para 6 and Para 14(i)).

d. The assets were not identifiable (See Para 14.1.).

a. The settled position of law that has been reiterated by the Hon’ble ITAT by relying of the decision of the Hon’ble S.C. in Arvid Norattam (1988) 173 ITR 479 (SC) which is that commercial expediency has to be adjudged from the POV of the businessperson, where the Department cannot hold a grudge against the assessee in order to question his/her decision making process, solely on suspicion, surmises and conjectures. See Para 23.

110 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. b. The holding of the Hon’ble ITAT that in the case of an SCBL transaction, physical delivery is not a must and even constructive delivery satisfies the legal aspect. See Para 27

“3.2 . Decision in the case 1. In this case, the allegation of the Department was again, that the SCBL of Cosmos Films Ltd. decided transaction was in fact a financial and loan by Hon’ble Delhi High Court;- transaction that had been masked as a purchase and lease transaction. (See Para 1). 3.2.1 The appellant claimed 2. The Hon’ble ITAT in this case had dismissed that in the case of Cosmos Films the Department’s case by observing that the Revenue could not bring on record any fact Ltd. (supra), the Hon’ble Delhi which showed that the SCBL transaction was H.C. has held that the intention ingenuine. (See Para 3). of the parties have to be gathered 3. The Hon’ble H.C. after a detailed form the words of the agreement consideration of the facts and circumstances of in a tangible and objective the case, held as follows: fashion, and not on any such a. Upon a plain reading of the lease hypothetical pretext that the agreement, while the possession of and the right to use the equipment was transferred assessee held the supposed to the lessee, the lessor retained the motive of evading the payment of title/ownership of the equipment as well as tax. the right to reversion at the end of the lease period/termination of the lease. See Para 10. (Clauses of the same nature exist in the present case as well).

111 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 3.2.2. Interestingly, vide written b. Sec.19 of the Sale of Goods Act, 1930 was applied, where Sec.19(2) specifies that for submission dated 17/05/2021, the purpose of ascertaining the intention of inherent contradictions in the the parties, regard shall be made to the agreement to transfer terms of the contract, the conduct of the parties and circumstances of the case. See equipments vis-à-vis lease Para 11. agreement have been highlighted at various paras (A.7 & A.8) of c. The decision of McDowell and Co. had been watered down by the Hon’ble S.C. in written submission dated the case of Azadi Bachao Andolan 2003 17/05/2021. In such a scenario (263) ITR 706 (SC) – that clearly opined of conflict in the documentation that tax planning may be legitimate if it is within the 4 corners of the law. See Para relied upon by the appellant, the 16, 17. applicability of aforesaid decision of Delhi High Court does not have d. Reliance was placed on the decision of Industrial Development Corporation of any relevance.” Orissa Ltd., 268 ITR 130 (Ori) to hold that the Revenue could only discard a transaction if material or evidence exists before it to show that the intention of the parties was different from what has been incorporated in the documents forming part of the SCBL transaction. The Hon’ble Delhi H.C. agreed with the finding of the Hon’ble Ori H.C. by holding that the real intention of the parties entering into such an SCBL transaction has to be “gathered from the words of the agreement in a tangible and objective manner and not upon a

112 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. hypothetical assessment of the supposed motive of the assessee to avoid tax.”See Para 18. 4. The CIT(DR) cannot escape the express findings of the jurisdictional H.C. of Delhi, that has clearly held that the onus lay on the Department to discard an SCBL arrangement by bringing evidence on record.

However, instead of bringing any such material/evidence on record, the CIT(DR) has merely reverted to his Written Submissions dt.17.05.2021 where at Para A.7 and A.8 he has alleged that despite the specific clauses of the Lease Agreement, possession of the equipment was not transferred to the Assessee herein, since the same could not be dismantled and was thus not practically feasible to handed over; and based on the same he concluded that the transaction was a smoke screen. The allegations of the CIT(DR) have been adequately rebutted in the Assessee’s Rejoinder dated 27.05.2021.

113 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. TTJ 294 (Delhi), wherein the Hon’ble Delhi H.C. has held that when no material is available on record, then the agreement of a SCBL transaction can only be treated as ingenuine when one party to the agreement claims it to be so and not on a whimsical basis of the Department. See internal Pg.7/9 of the decision.

114 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. no part of it should be ignored unless it is so inconsistent with the rest of it that no meaning can be given to it.”See Para 17 of the decision. “3.2.4. Hon’ble Delhi High 1. In this case, information was received from Additional Director of Income Tax Court in the case of Intsalment (Investigation) that a biogas plant Supply Limited (ITA NO. purchased from and leased back to Western 442/2007) held that the real Pacques (India) Limited, Pune was not to be found at the site, where it was stated to issue and question involved in be installed. Accordingly the Notice u/s 148 the present case is whether or was issued. (See Para 4). not the agreement in question 2. Subsequently, on 30thMarch, 1998, the was a finance agreement or an assessee made a declaration under the operating lease and the question Voluntary Disclosure of Income Scheme, cannot be decided by merely 1997(VDIS, 1997). In this declaration, the assessee withdrew its claim and offered for looking at the title of the taxation depreciation claimed on the assets agreement or the nomenclature purchased from and leased back to Western given to the said agreement. The Pacques (India) Limited. This transaction was treated as a Finance Lease by the terms and conditions mentioned assessee. (See Para 5). in the agreement may be relevant but the surrounding 3. The issue at hand pertains to a similar arrangement between the assessee and HCL circumstances & type and nature Hewlett Packard Limited, where considering the of the asset have also to be background facts of the case, the Hon’ble H.C. held that the question was whether the considered.” transaction was in the nature of a finance or an operating lease. See Para 11. .

115 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi.

116 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. in M/s Brace Iron and Steel Pvt. Ltd. vs. Tata Steels BSL Ltd., OMP(I)(COMM) 285/2020 decision dt.14.12.2018. Thus the concept of ‘preponderance of probability, surrounding circumstances etc.’ does not come into the picture.

117 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. do not see justification for denial of depreciation allowance to the assessee.” See Para 17.

“Decision in the case of Podar 1. Firstly, the decision of Podar Cement Cement, 1997 92 Taxman 541 (supra) is a landmark case that has been (SC) - cited by numerous courts over the years. In the decision of Mysore Minerals Limited, 4.2 In this regard, the Hon’ble M.G. Road, Bangalore vs. CIT, bench may like to take note that MANU/SC/0540/1999, the Hon’ble S.C. Hon’ble SC categorically has made the following observations w.r.t. observed (para 30 of the order) Podar Cement (supra): that “We may usefully extract “13. Podar Cements case (Supra) is under certain passages from the the Income-tax Act and has to be taken as judgment of the Patna High trend-setter on the concept of ownership. Court.” This clearly shows that Assistance from the law laid down therein the Hon’ble SC considered it can be taken for finding out meaning of relevant for taking decision in the the term 'owned' as occurring in Section cited case. 32(1) of the Act.”

118 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi.

4.3 Further, it is also 2. In this context it is pertinent to note that the noteworthy that the concept of CIT(DR) has erred in understanding the “ownership” has been taken from ratio decidendi of the decision of Podar passages from G.W. Paton on Cement (supra )that is in favor of the Jurisprudence, Dias on Assessee, since the decision holds that the Jurisprudence, Stroud's Judicial term ‘owner’ must be interpreted and Dictionary and Pollock on assigned a wider under the Income Tax Act. Jurisprudence. In other words, Attention in this regard is directed to the the concept of ownership has relevant excerpts of Mysore Minerals been taken from well recognised Limited (supra) that has held recorded the jurisprudence on the issue. The issues before the Hon’ble S.C. in Podar SC has taken note that from the Cement (supra) as well as its finding in the Roman Law up to the English following manner: Law at the present stage, “10. In CIT v. Podar Cement Pvt. mediaeval stage having been Ltd., (supra) the question which came interspersed with different up for consideration before this Court formulae, the position that now was whether the rental income from juristically emerges is this- the house property which had come to vest in the assessee, but as to which '(a) The power of enjoyment the assessee was not legal owner for (e.g., the determination of want of deed of title, was liable to be the use to which the res is to assessed as income from house be put, the power to deal property, or as income from other with produce as he pleases, sources. To be assessable as income the power to destroy); from house property within the (b)Possession which meaning of Section 22 of the Act the includes the right to exclude property should be such "of which the others; assessee is the owner". This Court upon (c)Power to alienate inter a juristic analysis of the underlying

119 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. vivos, or to charge as scheme of the Act and resorting to security; contextual and purposive (d)Power to leave the res by interpretation, also having reviewed will several conflicting decisions of different High Courts, held that the 4.4 Para 30 of the order is liability to be assessed was fixed on a reproduced for ready reference:- person who receives or is entitled to receive the income from the property in “30. The Patna High Court has his own right. Vide para 55, this Court cited this Court's judgment in has held: R.B. Jodha Mal Kuthiala's “we are conscious of the settled case (supra) and also number position that under the common of other judgments of the law owner means a person who has different High Courts. The got valid title legally conveyed to High Court had also gone into him after complying with the the concept of 'ownership' and requirements of law such as referred to passages from Transfer of Property Act, G.W. Paton on Registration Act etc. But in the Jurisprudence, Dias on context of Section 22 of the Jurisprudence, Stroud's Income-tax Act having regard to Judicial Dictionary and the ground realities and further Pollock on Jurisprudence. having regard to the object of the We may usefully extract Income -tax Act namely, "to tax the certain passages from the Income", we are of the view, owner judgment of the Patna High is a person who is entitled to Court. …”” receive income from the property in his own right.”

120 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 3. The finding of the Hon’ble S.C. in Mysore Minerals Limited (supra) starts from Para 14, where after considering various decisions, and dictionary meanings of the term ‘owner’ - the Hon’ble S.C. held at Para 18 & 19 that:

“18. An overall view of the above said authorities show that the very concept of depreciation suggests that the tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset is utilizing the capital asset and thereby losing gradually investment caused by wear and tear, and would need to replace the same by having lost its value fully over a period of time.

121 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. or profession. Assigning any different meaning would not subserve the legislative intent. To take the case at hand it is the appellant-assessee who having paid part of the price, has been placed in possession of the houses as an owner and is using the buildings for the purpose of its business in its own right. Still the assessee has been denied the benefit of Section 32. On the other hand, the Housing Board would be denied the benefit of Section 32 because inspite of its being the legal owner it was not using the building for its business or profession. We do not think such a benefit-to-none situation could have been intended by the Legislature……”

122 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. decendi of the said case is contrary to what has been interpreted by the Hon’ble S.C. in Mysore Minerals(supra). This is however a fallacious reading of Podar Cements (supra)for the following reasons which become evident from a wholesome reading of the latter, as done by the Undersigned hereunder:

a. Since the Hon’ble S.C. in Podar Cements (Supra) reviewed several conflicting decisions of different High Courts, the S.C. at Para 22 held that the controversy revolves around the meaning to be given to the words 'of which the assessee is the owner' occurring in section 22 of the Act.

b. At Para 23-24 the Hon’ble S.C. has discussed the case of R.B. Jodha Mal Kuthialav. CIT [1971] 82 ITR 570 (SC),to hold at Para 25 that:

“25. In our opinion, the above observations of this Court clearly fixes the liability on a person who receives - or is entitled to receive the income from the property in his own right. In spite of this, the Assessing Officers of various circles instead of uniformally following the ratio laid down in this case have taken different diametrically opposite views

123 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. depending upon the pronouncements of the concerned High Courts in the circles on the scope of section 22. The High Courts of Allahabad, Punjab and Haryana, Rajasthan, Calcutta and Patna have taken the view by correctly understanding the ratio laid down in R.B. Jodha Mal Kuthiala's case (supra) and the High Courts of Bombay, Delhi and Andhra Pradesh have taken a different view wrongly distinguishing on facts in R.B. Jodha Mal Kuthiala'scase (supra).”

c. From Para 26 to 33 of the said case, the Hon’ble S.C. has cited the aforesaid H.C. decisions that have correctly understood the ratio laid down in R.B. Jodha Mal Kuthiala's case (supra) vis-à-vis the phrase ‘of which the assessee is the owner’ occurring in Sec.22.

d. Para 30 of Podar Cements (Supra) are recorded excerpts of the decision of the Patna H.C. and not a finding of the S.C. The decision of the Patna H.C. reproduced by the S.C. in Para 30, goes in our favour and not against us. This is because at Para 30, the excerpt of the Patna H.C. first deals with the general interpretation of the term ‘owner’ including the 4 points that the

124 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. CIT(DR) is referring to and has then gone on to give the following finding:

“30……Thus, the juristic principle from the view point of each one is to determine the true connotation of the term 'owner' within the meaning of section 22 of the Act in its practical sense, leaving the husk of the legal title beyond the domain of ownership for the purpose of this statutory provision. The reason is obvious. After all, who is to be taxed or assessed to be taxed more accurately - a person in receipt of money having actual control over the property with no person having better right to defeat his claim of possession or a person in legal parlance who may remain a remainder man, say, at the end or extinction of the period of occupation after, again say, a thousand years? The answer to this question in favour of the assessee would not merely be doing palpable injustice but would cause absurd inconvenience and would make the Legislature to be dubbed as being a party to a non-sensical legislation. One cannot reasonably and logically visualise as to when a person in actual physical control of the property realising the entire income

125 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. and usufructs the property for his own use and not for the use of any other person, having the absolute power of disposal of the income so received, should be held not liable to tax merely because a vestige of legal ownership or a husk of title in the long run may yet clothe another person with the power of a residual ownership when such contingency arises which is not a case even here. A plain reading of clause 4 of the agreement, as extracted above, clearly goes to show that the physical possession of the properties has passed on or is deemed to have passed on to the assessee to have and to hold forever and absolutely with the power to use the same in whatsoever manner it thinks best and the assessee shall derive all income and benefits together with full power of disposal of the properties as well as the income thereof. Can it then be said that the recipient of the income being the assessee only having an absolute and exclusive control over the property without any let or hindrance on the part of the so-called vendor which, indeed, under law, it was not entitled to do, as we shall presently show, shall be immune from the taxing provision in section 22 of the Act? The answer in our view is clearly in the

126 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. negative. The reason is simple. The consideration money has been paid in full. The assessee has been put in exclusive and absolute possession of the property. It has been empowered to deal with the income as it likes……………………………. It may bear repetition to say that it was on account of these facts that juristic principles have now emerged saying that one of the most important of the powers of ownership is the right to exclude others from possession and the property right is essentially a guarantee of the exclusion of other persons from the use or handling of the thing. In that sense, therefore, the assessee itself became the owner of the property in question. In our view, any decision to the contrary would not be in consonance with the juristic principle either at common law or in equity. In either case, it would not be subservient to the intent and purpose of section 22 of the Act, with regard to which, as we have already stated, we can fairly look at the language used and the tax laws have to be interpreted reasonably and in consonance with justice. So far, we have dealt with the case in this respect on juristic principles as if it were a

127 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. matter of first impression. We have, therefore, now to refer to the case law on the subject." (p. 361)”

e. The Hon’ble S.C. affirmed the finding of the Patna H.C. at Para 35& 39 by holding as follows:

“34. The contrary view taken by the other High Courts was mainly based on the facts that unless there is a registered deed conveying the property, the person in possession/enjoyment of the property cannot be considered as legal owner and, therefore, he cannot be called upon to pay the tax under section 22.

128 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. are the correct views. The contrary view taken by the Delhi High Court is not correct.”

“53. We are conscious of the settled position that under the common law owner means a person who has got valid title legally conveyed to him after complying with the requirements of law such as Transfer of Property Act, Registration Act, etc. But in the context of section 22 having regard to the ground realities and further having regard to the object of the Act, namely, 'to tax the income', we are of the view that the owner is a person who is entitled to receive income from the property in his own right.”

11.1. He, accordingly, submitted that the Order of the Ld. CIT(A) be set aside and the grounds raised by the assessee be allowed.

129 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 12. We have considered rival arguments made by both the sides, perused the Orders of the A.O. and the Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions relied on by both the sides. The first issue to be decided as per the Grounds of Appeal Nos.1 to 6 relates to the disallowance of claim of depreciation of Rs.71,43,75,000/-. We find the A.O. disallowed the claim of depreciation on the ground that purchase of Plant and Machinery i.e., Oxygen Plants from M/s. BSL at an amount of Rs.952,50,00,000/- by obtaining loan from Banks by mortgaging such equipments/assets and thereafter on the same day leasing back of the asset to M/s. BSL for lease rent is nothing, but, a “sham transaction” basically on the following grounds :

1) Assessee herein has no financial worth, no capital, no assets and had no business activities prior to this SCBL transaction to partake a term loan of'Rs.850 crores.

2) The Assessee despite having no real worth - purchased second hand 'plant and machinery' from M/s BSL at an

130 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. inflated cost of Rs.1000 crores when, in fact, this "plant and machinery' was valued only at Rs.437.47 crores in the books of M/s BSL. 3) Since neither has the original cost of the Assets or their value as on the date of transfer been provided for by M/s BSL to the A.O. [despite repeated requests] is evident that the already depreciated Assets [on which depreciation has already been claimed by the M/s BSL beforehand for quite a number of years] were then conveniently sold at an inflated book value cost to the Assessee 4) The Assessee has only purchased "plant and machinery' devoid the building, civil work and other accompaniments that are vital to the operation of the same. The same therefore, proves the Revenue’s contention that the Assessee never intended to us the assets.

5) The Assessee has thus acted in collusion with M/s. BSL, by entering into the SCBL arrangement as part of

131 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. its modus operandi in order to further the business interests of the latter (since 1000 Crores was infused into the books of M/s BSL) as well as falsely inflate the value of the Assets in the books of the Assessee Co. in order to claim a huge depreciation. 6) The entire transfer is merely on paper, where the Assessee neither had the possession of the Assets or the infrastructure to utilise them. And thus, in the process, the Assessee Co. has incurred a colossal debt and huge interest expenditure, at no business advantage. 12.1. We find the Ld. CIT(A) confirmed the disallowance made by the A.O. on the ground that the assessee has arranged the transaction in a manner to avoid taxes by paying disproportionately high price for the assets having much lesser market value in order to claim depreciation and reduced its income. He noted that its financials do not justify such huge investments and the equipments have also not been put to use for assessee’s own business purpose. He observed that the assessee has neither a business premises nor an employee nor it has purchased

132 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. the entire oxygen plant which could be used for business purposes. It is also his allegation that leasing out equipment is not the business objective of the assessee.

12.2. It is the submission of the Learned Counsel for the Assessee that the allegation of the Revenue that the transaction between the Assessee and M/s. BSL is in nature of “sham transaction” wherein the assessee is arranging transaction in such a manner to claim a high rate of depreciation and to avoid taxes is illegal, arbitrary and erroneous finding in view of the decision of the Hon’ble Delhi High Court in the case of the Assessee i.e., M/s. Brace Iron & Steel Pvt. Ltd., New Delhi vs., Tata Steel BSL Ltd., vide OMP(1)(COMM) 285/2020 vide Order Dated 14.12.2020 wherein the Hon’ble Delhi High Court after considering various clauses of the very same agreement which have been relied on by the A.O. and Ld. CIT(A) has upheld the validity and veracity of the Lease Agreement Dated 26.02.2015 and the terms stipulated therein and held the same to be binding on both the parties. Therefore, it is his submission that the very reasoning adopted by the A.O. to

133 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. show the existence of alleged modus operandi/collusion between [Then] M/s. BSL and the Assessee does not survive since the entire factual background of the matter that why the Sale–cum-Lease Back transaction was entered into has been discussed by the Hon’ble Delhi High Court along with the terms of the Lease Agreement Dated 26.02.2015 and it has upheld the transaction as valid in spite of the fact that the respondent therein had also raised the exact plea that has been taken by the A.O. herein i.e., that the transaction was not at arm’s length and has thus lead to exaggerated amounts being paid as lease rentals that were artificially fixed to meet the requirements of INR 1000 Crores.

12.3. We find sufficient force in the above arguments of the Learned Counsel for the Assessee. We find BSL Limited, prior to undergoing insolvency and resolution process, had availed financial assistance in the form of secured term loan, secured working capital loans and other secured fund and non-fund based facilities from various Banks/Financial Institutions. Subsequently, as part of deleveraging exercise

134 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. and decisions taken at the meeting of Lenders of BSL held on August 18, 2014, BSL was required to monetize four oxygen plants having capacity of 1200,1120,405 and 340 tons per day (TPD), which are part of Integrated Steel Facility at Mermandali, Odisha through 'Sale and Lease Back Arrangement'. The Lenders of BSL thereafter issued an NOC on February 21, 2015 permitting BSL to execute a Sale and Lease Back Agreement with the Assessee on the condition that interest over the lease for the Oxygen Plants shall be charged for the benefit of the Lenders. In pursuance thereof, BSL sold the Oxygen Plants situated at the Integrated Steel Facility to the Assessee viz., M/s. Brace Iron & Steel Pvt. Ltd. We find, the assessee on February 26, 2015 entered into separate agreement with the Lenders to raise Rs.850 Crores in debt to finance the acquisition of the Oxygen Plants and additionally Rs.149 Crores were invested by SREI Infrastructure Finance Ltd. in the form of compulsory convertible debentures. In the form of equity, Rs.1 Crore was invested into BSL by Bharat Nirman Fund. All these funds were utilized for acquiring the four Oxygen

135 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. Plants. Simultaneously, a Lease Agreement dated February 26, 2015 was executed between the Assessee and BSL for leasing of the Oxygen Plants located at the Integrated Steel Facility, for an initial period of 10 years along with the option of renewal available to BSL for a further period of 5 years. In pursuance of the Lease Agreement, on February 26, 2015, BSL issued an invoice for the payment of Rs.10,00,12,50,000/- (Rs. One Thousand Crores Twelve Lakhs and Fifty Thousand only) which included Rs.47.62 Crores towards VAT, for the sale and transfer of the Oxygen Plants.

12.4. We find M/s. Bhushan Steel Limited underwent Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016 and was acquired by Bamnipal Steel Ltd., a wholly owned subsidiary of Tata Steel Ltd., and was subsequently renamed as Tata Steel BSL Ltd., w.e.f. November 27, 2018. We find dispute arose between the Assessee i.e., M/s. Brace Iron & Steel Pvt. Ltd., and M/s. Tata Steel BSL Limited regarding payment of lease

136 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. rentals. The matter went up to the Hon’ble Delhi High Court and the Hon’ble Delhi High Court decided the issue in favour of the Petitioner i.e., the Assessee and against the Respondent i.e., M/s. Tata Steel BSL Limited by holding the Lease Agreement as valid which is the very same Lease Agreement treated by the Revenue as sham and colourable.

12.4.1. The Hon’ble Delhi High Court has at Para No.8 of the Order reproduced the following Clause of the said Lease Agreement which reads as under :

“8. To bring out the broad scheme of the Lease Agreement, the petitioner has relied upon the following Clauses of the Lease Agreement:

"2.1. Subject to the provisions of the Lease Agreement and in consideration of the Rent to be paid by the Lessee as set out in this Agreement, the Lessor on and with effect from the Effective Date grants, demises and leases unto the Lessee, the Equipments, on an operating lease basis, in the manner

137 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. provided in this Lease Agreement (Lease). From the Effective Date, the Lessee shall have exclusive right to use and enjoyment of and uninterrupted access to Equipments for its Business during the Lease Term, subject to the terms and conditions of this Lease Agreement."

"5.1. In consideration of the Lease being granted, the Lessee shall pay to the Lessor a monthly rent (not of all taxes and tax deduction at source), details of which are set out in Schedule 2 hereof, in arrears on or before 2 (two) business days prior to the last date of each month (Rent) .

. . . Further, the Parties acknowledge that the above Rent is based on, among others, a benchmark rate (based on the cost of financing the purchase of the equipments by the Lessor) that has been agreed between

138 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. the Parties prior to the date of execution of this Lease Agreement. .. "

"5.2. Notwithstanding anything contained in this Lease Agreement, the Lessee shall be liable to pay the Rent to the Lessor in accordance with the terms hereof with effect from the Han dover Date (Rent Commencement Date), and the Rent and other amounts payable by the Lessee in accordance with terms hereof shall always be paid in/ to the credit of the Lessor's Designated Bank Account."

"6.3. Use and enjoyment (a) The Lessee shall, subject to making timely payments and compliance with the terms and conditions of the Lease Agreement, have quiet, peaceful use, enjoyment and possession of the Equipments without any interference from or disturbance by the Lessor, its representative or any person claiming under the Lessor."

139 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. "11.2 Arbitration Procedure If a Dispute is not resolved within 20 (twenty) business days after the service of a Dispute Notice, whether or not a Dispute Meeting has entitled to refer the Dispute to arbitration by a notice to the other party (Notice of Arbitration) and the Dispute will be finally resolved in the manner set out in this Clause 11. The pendency of a Dispute in any arbitration proceeding shall ot affect the performance of the obligations (which are not the subject matter of this Dispute) under this Lease Agreement.

11.4. Venue, Language, and Rules of Arbitration The seat of the arbitration shall be in Delhi and the arbitration shall be conducted under, and in accordance with, the Arbitration and Conciliation Act, 1996. The language of arbitration shall be English."

140 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 12.5. We find after considering various arguments made by both the sides the Hon’ble Delhi High Court upheld the validity and veracity of the Lease Agreement Dated 26.02.2015 and the terms stipulated therein and held that the same is binding on both the parties. The Hon’ble Delhi High Court has also held that transaction is valid in spite of the fact that the respondent therein i.e., Tata Steel BSL Limited had also raised the exact plea as raised by the A.O. i.e., the transaction was not at arms length and has thus lead to exaggerated amounts being paid as lease rentals that were artificially fixed to meet the requirement of INR 1000 Crores. Although some of the paragraphs have already been reproduced in the preceding paragraphs, however, at the cost of repetition, the relevant observation of the Hon’ble Delhi High Court from Paras 65 to 89 are reproduced which read as under :

141 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 1. There is an admitted obligation to pay rent on part of the respondent as per the Lease Agreement. (Reference to Clause 5.1 and 5.2).

3.1. Rent collected is utilized towards servicing the loans taken for acquiring the leased equipment;

3.2. Respondent is in possession and continued commercial usage of the leased equipment worth over Rs. 1000 crores, without paying rent;

3.3. Owing to the non-payment respondent is unjustly enriching itself whereas the petitioner is suffering financially;

3.4. The respondent has security in form of possession of the Leased Equipment, the petitioner has no such security for ensuring payments of lease rentals;

142 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 4.1. The non-payment has resulted in forced liquidity crunch for the petitioner;

4.2. This might lead to petitioner facing legal proceedings and damaged credit ratings;

4.3. In addition to the penal interest on account of moratorium opted due to non-payment by the respondent.

143 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 7. The entire transaction was appraised by over 17 Banks and no dispute was raised by CoC, RP on the Lease Agreement and therefore the respondent cannot wriggle out of express covenants (Ref: Alopi Parshad and Sons Ltd. (supra)).

144 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 66. On the other hand, the submissions of Dr. Singhvi and Mr. Nigam (Counsels) are as follows:

145 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. COVID-19 and therefore, no injunction or restraint from using the Oxygen Plants can be granted considering the fact that the Steel Facility cannot be run without its Oxygen Plant.

7.1. The entire transaction was clearly not an arm's length but rather a friendly transaction

146 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. which has led to payments of exaggerated amounts as lease rentals that were artificially fixed to meet the requirement of INR 1000 Crore (sale price), making it further into nature of a financial lease;

7.2. The same is mentioned in a SFIO Complaint and Investigation Report;

7.3. The fact that the Lease Agreement and Common Loan Agreement records existence of four Oxygen Plants and the admitted stand that the 340 TPD plant was always non-functional is further indicative that the transaction was not at arm's length;

7.4. It was while reviewing various contracts /transactions as per the Annual Reports of the Company after reviving the respondent that it was realized by the respondent that Rs.18 Crore per month lease rental was not in accordance with the prevalent market standards but far in excess of it

147 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. and negotiations were going on between the parties;

7.5. Clause 5.2, which imposes an unconditional obligation must be read along with Clause 5.1 of the Lease Agreement, which states that "Lessor and Lessee may mutually decide to increase or decrease the prevalent rent (and / or other payables) at any time during the subsistence of this Lease Deed";

7.6. The petitioner failed to comply with Clause 6.1(vii) of the Lease Agreement and Clause 6.1.7 of the Common Loan Agreement which casts an obligation on the petitioner to maintain the Oxygen Plants in accordance with best industry practice and undertake routine repairs; 7.7. Since February, 2015 till May 31, 2020, the respondent has evaluated an expense incurred at Rs. 41, 79, 48,852/- towards maintenance of the Oxygen Plants; 7.8. Meeting the insurance obligations as

148 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. per the Clauses under the Loan Agreement and Common Loan Agreement will not discharge the petitioner of its maintenance obligations;

7.9. No technical person appointed to oversee the functioning of the Oxygen plants until September, 2020; 7.10. Various communications between the parties whereby petitioner is informed about required repairs, requirement of spares, maintenance cost since 2019; 7.11. As per the ledger/statement of accounts of the Company, as well as stand-alone financial statement of petitioner for FY-2017-18 an outstanding amount of Rs. 10,19,91,600/- is payable by the petitioner to the respondent. Demand for its payment was made by respond on July 03, 2020 and the liability was acknowledged by one of the official of petitioner's Lenders. Reliance place on ESPN Software India Pvt. Ltd. (supra) and Shahi Exports Pvt. Ltd. (supra) to contend that admission in balance sheet is per se an admission of liability.

149 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 8. The plea that the respondent is attempting to force the petitioner into being declared an NPA by the lender bank is ill-founded as the petitioner had undertaken the moratorium on debt repayment and has also received close to 70% of the renal amount from the respondent through part payment made every month. Moreover, Supreme Court has currently stayed declaring loan facilities NPA.

150 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. of the Lease being granted, the Lessee shall pay to the Lessor a monthly rent (net of all taxes and tax deduction at source), details of which are set out at Schedule 2 hereof, in arrears on or before 2 (two) business days prior to the last date of each month (Rent).

The Lessor and the Lessee may mutually decide to increase or decrease the prevalent Rent (and/or other payables) at any time during the subsistence of this Lease Deed. Further, the Parties acknowledge that the above Rent is based on, among others, a benchmark rate (based on the cost of financing the purchase of the Equipments by the Lessor) that has been agreed between the Parties prior to the date of execution of this Lease Agreement. In the event the benchmark rate changes or the Parties agree to change the benchmark rate/apply some other benchmark, the Rent payable may increase or decrease accordingly.

For any revision of the Rent in accordance with the above, the Party proposing to revise the Rent shall

151 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. provide a notice to the other Party. Within 5 business days of such other Party receiving the notice, the Parties shall meet and decide on the revised Rent if acceptable to both the Parties. It is clarified that in the event the Lessor claims credit from the tax authorities for the tax deducted at source and deposited by the Lessee on the Rent, the amount representing such credit will be refunded by the Lessor to the Lessee. The Lessee may choose to set-off such amounts against future Rent payments to the Lessor.

5.2 Notwithstanding anything contained in this Lease Agreement, the Lessee shall be liable to pay the Rent to the Lessor in accordance with the terms hereof with effect from the Handover Date (Rent Commencement Date), and the Rent and other amounts payable by the Lessee in accordance with the terms hereof shall always be paid in/ to the credit of the Lessor's Designated Bank Account.

XXX XXX XXX

152 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. SCHEDULE 2 RENT PAYMENT DETAILS

The monthly Rent to be paid by the Lessee shall be as follows:

(a) Rs. 150,000,000 (Rupees Fifteen Crores only) (net of all taxes and tax deduction at source) for the period commencing on the Rent Commencement Date and ending on 31 March 2020; and

(b) Rs. 180,000,000 (Rupees Eighteen Crores only) (net of all taxes and tax deduction at source) for the remaining duration of the Lease Term, provided that the Parties may revise the monthly Rent as agreed between them from time to time.

Notwithstanding the foregoing: (i) for the first month of the Lease Term, in addition to the Rent payable for that month, the Lessee shall also pay an amount of Rs. 15,00,00,000/= (Rupees Fifteen Crore only) as one month's advance Rent. This shall be

153 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. adjusted by the Lessor only against the Rent payable for the last month of the Lease Term or against any other amounts as may be agreed in writing by the Lessee, and (ii) if the Lease Commencement Date is a day other than the first date of the month, then the Rent payable for that month shall be pro-rata to the number of remaining days of that month."

154 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. transactions as per an Annual Report of the company it was realised by the respondent that Rs.18 Crores per month leased rental is not in accordance with prevalent market standard, but is far excess of it.

155 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. parties and needs to be decided/adjudicated. Surely, such a dispute cannot be decided in these proceedings as that shall be the final adjudication of the dispute. There being an arbitration clause, such a dispute needs to be decided in the prospective arbitration proceedings. But the question that arises is, pending arbitration proceedings, whether the petitioner isentitled to the reliefs as prayed for in the petition.

156 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. the manner stipulated in the Lease Agreement i.e., Clause 5.1 read with Schedule 2.

157 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. In substance, it was their plea that the respondent has incurred expenses to the tune of Rs.41,79,48,852/- for the upkeep of the plants.

158 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. generation of oxygen was as per the requirements. That apart, the respondent has been deliberately causing obstacles for the petitioner to inspect the Oxygen Plants by providing information belatedly and that too operating the oxygen plants in deviation from the standard operation procedures.

159 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. the other hand, it is the case of the respondent that the 340 TPD plant was always non-functional. That apart, the report on which reliance was placed by Mr. Sibal is disputed by the respondent stating that the same has been prepared during the course of the day on an inspection of merely a few hours which does not have within its scope review of any technical/mechanical operation of the Oxygen Plants. In other words, the conclusion in the report is not acceptable to the respondent.

160 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. of the reliefs as prayed for. I have perused the said judgments carefully viz., Goodwill Non-Woven Pvt. Ltd. (supra), Avantha Holdings Ltd. (supra) and Nirbhay Pratap Singh (supra). Suffice to state that this Court in the facts and circumstance of those cases refused to exercise its power under Section 9 of the Act.

161 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. of CPC. The same view was expressed by another Division Bench of this Court in the case of Value Source Mercantile Ltd. (supra) . The relevant portion of the said judgment reads: "13. Section 9 of the Arbitration Act uses the expression "interim measure of protection" as distinct from the expression "temporary injunction" used in Order XXXIX Rules 1&2 of the CPC. Rather, "interim injunction" in Section 9 (ii) (d) is only one of the matters prescribed in Section 9 (ii) (a) to (e) qua which a party to an Arbitration Agreement is entitled to apply for "interim measure of protection". Section 9(ii) (e) is a residuary power empowering the Court to issue/direct other interim measures of protection as may appear to the Court to be just & convenient. Section 9 further clarifies that the Court, when its jurisdiction is invoked thereunder "shall have the same power for making orders as it has for the purpose of and in relation to, any proceedings before it".

162 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 14. The question which thus arises is that if the dispute as aforesaid had been brought before this Court by way of a suit, whether this Court could have, during the pendency of the suit, granted the relief as has been granted in the impugned order. Order XXXIX Rule 10 of the CPC empowers the Court to direct deposit/payment of admitted amounts. The appellant, as aforesaid does not controvert that it continued to be the tenant of office unit B-1 and had not terminated the tenancy with respect thereto. There is thus an admission by the appellant of the liability for rent at least of office unit B-1. The appellant, if had been a defendant in a suit, could have thus been directed by an interim order in the suit to make such payment to the respondent. Order XV-A added to the CPC as applicable to Delhi and which was added, as held by us in judgment dated 15th May, 2014 in FAO(OS) 597/2013 titled Raghubir Rai Vs. Prem Lata, to empower the Court to direct

163 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. payment during the pendency of the suit at a rate other than admitted rate also, empowers the Civil Court to direct payment which is apparently wrongfully disputed. The denial by the appellant of the entire rent as agreed, on the ground of having determined the tenancy of one of the two office units taken on rent, is clearly vexatious, as in law the appellant as a tenant could not determine tenancy of part of the premises taken on rent. It is not the case of the appellant that it was entitled to do so as part of terms of its tenancy. In that view of the matter, the appellant could under Order XV-A of the CPC have been directed to pay the rent of the entire premises notwithstanding having given notice of termination of tenancy of part thereof We are therefore satisfied that the impugned order satisfies the test of being in exercise of the same power for making orders as the Court has for the purpose of a Civil Suit and is

164 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. thus within the ambit of Section 9 of the Arbitration Act."

165 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 82. Likewise, in Value Source Mercantile Ltd. (supra) as well a Division Bench of this Court, in paragraph 13 and 14 has held as under:

166 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 14. The question which thus arises is that if the dispute as aforesaid had been brought before this Court by way of a suit, whether this Court could have, during the pendency of the suit, granted the relief as has been granted in the impugned order. Order XXXIX Rule 10 of the CPC empowers the Court to direct deposit/payment of admitted amounts. The appellant, as aforesaid does not controvert that it continued to be the tenant of office unit B-1 and had not terminated the tenancy with respect thereto. There is thus an admission by the appellant of the liability for rent at least of office unit B-1. The appellant, if had been a defendant in a suit, could have thus been directed by an interim order in the suit to make such payment to the respondent. Order XV-A added to the CPC as applicable to Delhi and which was added, as held by us in judgment dated 15th May, 2014 in FAO(OS)597/2013 titled Raghubir Rai Vs. Prem Lata, to empower the Court to direct

167 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. payment during the pendency of the suit at a rate other than admitted rate also, empowers the Civil Court to direct payment which is apparently wrongfully disputed. The denial by the appellant of the entire rent as agreed, on the ground of having determined the tenancy of one of the two office units taken on rent, is clearly vexatious, as in law the appellant as a tenant could not determine tenancy of part of the premises taken on rent. It is not the case of the appellant that it was entitled to do so as part of terms of its tenancy. In that view of the matter, the appellant could under Order XV-A of the CPC have been directed to pay the rent of the entire premises notwithstanding having given notice of termination of tenancy of part thereof. We are therefore satisfied that the impugned order satisfies the test of being in exercise of the same power for making orders as the Court has for the purpose of a Civil Suit and is

168 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. thus within the ambit of Section 9 of the Arbitration Act.

169 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. on which reliance has been placed is neither unequivocal nor clear or categorical for it to be an admission. Rather, it is qualified by two factors 'balance convertible of Rs.21,94,96,885/-' and 'subject to confirmation'. Further, the alleged claim of Rs.10,19,91,600/- does not arise under the Lease Agreement and as such is not covered under the ambit of the present arbitral procedure. Even otherwise, it was his submission that the claim of Rs.10,19,91,600/- is barred by limitation as it pertains to sale agreement 2015.

170 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. Singhvi and Mr. Nigam by relying on the judgments of Shahi Exports Pvt. Ltd. (supra) and ESPN Software (supra) that acknowledgment of debt in the balance sheet is an admission. But the Division Bench of this Court in Durga Builders (supra) held as under:

"14. As the Court recognized in its judgment, the admission must be clear, unequivocal and categorical, whereas in this case, various questions still require consideration and the alleged admission of liability in the balance sheet can be explained away, and accordingly, these issues must be put to trial. The issue here is not whether Durga Builders has an unimpeachable case, but rather, whether there is some room to doubt that the liability is established. Since Durga Builders, in its written statement, reply to the application under Order XII, and in its reply to the present review petition, has contested the existence of the ICDs, and MGF's case is based on a debt arising from the ICDs, this Court does not

171 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. find merit in the argument that debt is established, while only the nature of the security is dispute. Neither is Mr. Nanda's alleged admission categorical, in that he specifically avers wrongdoing on behalf of Mr. Mehra, a fact which, whether ultimately true or not, deserves to be tested during the ordinary course of trial. The fact that Mr. Nanda and his lawyers have allegations of forgery pending against them in unrelated trials, or that FIRs have been registered against them, does not allow this Court to reach the conclusion that its findings based on well-established jurisprudence surrounding decree on admissions are to be reviewed or set aside. Crucially, this Court, neither in its judgment of 10.04.2012 nor in the present review expresses any opinion on the merits of the claims advanced by either party, but only reiterates that these claims must be tested at trial...."

(Emphasis supplied.)

172 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 86. In view of the above, it is clear that Rs. 18 crores being the contractual amount w.e.f April 01, 2020, the said amount is prima facie payable by the respondent atleast till such time the parties seek adjudication of the disputes as per the contractual provisions.

173 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 12.4. From the above, it is clear that the various allegations of the A.O. as well as the arguments of the Ld. D.R. has been answered by the Hon’ble Jurisdictional Delhi High Court treating the Lease Agreement as genuine and thereby directing the respondent i.e., Tata Steel BSL Ltd., who has acquired M/s. BSL to make the payment as per the terms of the very same Lease Agreement which was doubted by the Revenue as sham and colourable. From the various details furnished by the assessee as well as submissions made before the Hon’ble Delhi High Court, it is noted that the assessee is no way related to M/s. BSL. It has no concern or connection with the erstwhile M/s. BSL Group and the shareholding of the assessee-company is owned by SREI Alternative Investment Trust. The assessee has not been named in any charge-sheet filed by the SFIO. Therefore, the question of furtherance of business of M/s. BSL, in our opinion, does not arise.

12.4.1. Further it has been demonstrated before the Hon’ble High Court that the terms of the Lease Agreement are at arm’s length. When the entire transaction was

174 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. appraised by Seventeen [17] Banks led by State Bank of India and since most of the Banks are Government of India undertakings, therefore, making a serious allegation treating the transaction as sham and colourable in absence of any evidence before the Revenue Authorities, in our opinion, is not justified.

12.4.2. So far as the allegation of the A.O. that the assessee-company has no finance worth since it has paid- up capital of Rs.1 lakh only and it has no assets and had no business activity prior to its decision to purchase the plant and machinery of M/s. BSL at the end of 2014-2015 is also has no basis especially when the assessee belongs to the famous SREI International Group of Companies engaged in business of leasing, hire purchase etc., having huge net worth. Further, being the subsidiary of SREI Alternative Investment Trust, the assessee-company has backing of the SREI International Group of Companies and, therefore, the observations of the Revenue Authorities on this issue does not hold any merit.

175 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 12.5. We further find from Clause-2.1 of the Lease Agreement that this Lease Agreement entered into is in the nature of an operating lease where the idea is not to finance the lessee, but, to enable the lessee to operate the asset and earn profits and where the assessee-lesser would be entitled to depreciation on the asset leased-out, since his business would be that of leasing and not mere money lending. We further find from Clauses 9.1, 9.2 and 9.3 of the Lease Agreement wherefrom it is clear that the assessee is the qualified and unequivocal owner of the assets. We further find from the annual report of M/s. BSL for the year ending 31.03.2015 that at Note-51 [Page-141 of the paper book] it has been categorically outlined the sold equipments [being 04 oxygen plants with accessories] as being taken-over by M/s. BSL under an “Operating Lease” for a period of 10 years from 26.02.2015. We, therefore, find merit in the arguments of the Learned Counsel for the Assessee that the assessee, in his capacity as the lessor-owner is entitled to claim depreciation under section 32 of the Income Tax Act,1961 which allows for depreciation on specified tangible

176 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. assets and intangible assets, when such assets are owned, wholly or partly, by the assessee and are used for the purpose of its business or profession.

12.5.1. A perusal of the object clause of the Memorandum of Association of the Company shows that the assessee is in the business of leasing of assets. Since in the instant case the assessee owned the asset as per the Purchase Agreement Dated 23.02.2015 and has utilised such assets for the purpose of its business, therefore, the requirement of Section 32 stands satisfied notwithstanding the non-usage of these assets by the assessee itself as the section only requires that the assessee must use the assets for the purpose of business and nowhere it mandates the usage of such assets by the assessee itself.

12.5.2. We find the Hon’ble Supreme Court in the case of CIT vs., Shaan Finance Pvt. Ltd., (supra) has clearly recognized the right of an assessee who is engaged in the business of leasing as being eligible for the investment

177 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. allowance under section 32A if the ingredients in the said section stand met.

12.5.3. We find the Hon’ble Supreme Court in the case of Mysore Minerals Ltd., (supra) has held that registered ownership is not necessary. It has been held in the said decision that “building owned by the assessee” under section 32 of the I.T. Act means the person who having acquired possession over the building in his own right uses the same for the purpose of his business or profession though a legal title has not been conveyed to him/her as per the requirement of Law such as the Transfer of Property Act and the Registration Act, but, nevertheless is entitled to hold the property to the exclusion of all others.

12.5.4. We find the Hon’ble Supreme Court in the case of ICDS Ltd., (supra) has held that usage of asset by assessee is not mandatory to claim depreciation. Therefore, the income obtained by assessee/lessor from the leasing of vehicles [while the assets were directly used by the lessee

178 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. company] would be business income derived in the course of business of the lesser.

12.5.5. We find the Hon’ble Delhi High Court in the case of CIT vs., Reetu Finlease Pvt.Ltd., (supra) has held that once machines are shown to have been handed-over to lessee, same must be deemed to have been utilised for business of assessee especially when assessee is engaged only in leasing business, and the assessee would be entitled to claim depreciation thereon.

12.5.6. We find the Hon’ble Andhra Pradesh High Court in the case of CIT vs., Orient Longman (Pvt.) Ltd., (supra) has held that for the purpose of claiming benefit under section 32 of the I.T. Act, the requirement of ownership by the assessee will be deemed to be fulfilled if the assessee has the domain and control over the property in his own right and not in the right of others.

12.5.7. We find the Hon’ble Supreme Court in the case of Liquidators of Pursa Ltd., vs., CIT (supra) has held that for the purpose of section 32, the expression “used for

179 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. the purpose of business” means uses for the purpose of business during the accounting year. The machine and plant must be such as were used atleast for a part of the accounting year.

12.5.8. We further find as per Explanation-4A of Section 43(1) of the I.T. Act, 1961, in the case of such SCBL transaction, the lessor [New Owner] is entitled to claim depreciation at the WDV of the assets in the hands of previous owner at the time of the sale. The Finance (No.2) Act of 1996 introduced Explanation (4A) to Section 43(1) of the I.T. Act to specifically address the issue of sale and lease back arrangement/transaction. We are of the considered opinion that the very mention of SCLB transaction in Explanation 4A is a recognition of the position that all sale and lease back transaction cannot be held to be motivated only for the tax evasion. In our opinion, tax planning means avoidance and not evasion of tax by planning the affairs within the four corners of the Law. In the instant case, we are of the considered opinion that the assessee has satisfied the ingredients of Section 32 read with Explanation 4A of

180 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. Section 43(1) in order to qualify for claim of depreciation as per Law. We, therefore, are of the considered opinion that the A.O. as well as Ld. CIT(A) have erroneously held the SCLB arrangement to be a paper transaction i.e., dubious/ in genuine nature which is purely based on presumptions, surmises and suspicion. It has been held in various decisions that presumptions and surmises, however strong may be cannot be the basis for addition.

12.5.9. We further find the lower authorities have also ignored the fact that the assessee company was incorporated with the objective of entering into such leasing arrangements which is evident from the object clause of the Memorandum of Association. Therefore, when the assessee had realised that BSL was undergoing a financial crunch it capitalized on the business opportunity and purchased the assets from the latter by way of a loan [against hypothecation of the assets], raising compulsory convertible debentures etc. Since BSL was interested in utilising the assets involved, the same were leased back to the latter

181 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. under an operative lease, in return for an assured and profitable rental income.

12.5.10. So far as the allegation of the Revenue that the Assessee does not have any infrastructure is concerned, we are of the considered opinion that leasing business does not require any such elaborate infrastructure and any such multi-location, SCLB arrangement can be entered into without the physical movement of the assets depending on the commercial viability of the transaction. Since the A.O. in the instant case has not disputed the genuineness of the Asset Purchase Agreement Dated 23.02.2015 and the simultaneous Lease Agreement Dated 26.02.2015 entered into between both the parties for the SCLB transaction, therefore, we find merit in the arguments of the Learned Counsel for the Assessee that the transaction cannot be doubted by the A.O. in absence of any valid and sufficient material available to support such a conclusion.

12.5.11. We further find some fundamental errors in the findings of the lower authorities. So far as the allegation

182 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. of the Revenue that the total value of the oxygen pants stands at Rs.437 crores as per the C.A. Certificate is concerned the same is factually incorrect. We find the said C.A. Certificate Dated 12.12.2014 reveals the value of the oxygen plants to be at Rs.981.68 crores as has been extracted by the A.O. at Pages-5 and 6 of the assessment order. So far as the allegation of the A.O. that the assessee herein has purchased only oxygen plant devoid of building, civil work and other accompaniments is concerned, the same is also factually incorrect since the assessee in the instant case has purchased both oxygen plants and other related equipments and also other ancillary installation equipments which is clearly evident from Schedule-1 of the Asset Purchase Agreement Dated 23.02.2015 [Paper Book 192 to 194] as well as from Schedule-1 of the Lease Agreement Dated 26.02.2015 [Paper Book 331 to 337]. Therefore, the allegation of the Revenue on this count also fails.

12.5.12. We further find the A.O. has also failed to consider the fact that depreciation claimed either by BSL or

183 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. the assessee under the SCLB transaction would amount to the same, showing that the situation is tax neutral. Therefore the assessee company cannot in any manner be accused of entering into the SCLB transaction with BSL as a tax evasion mechanism.

12.5.13. We, therefore, are of the considered opinion that the SCLB transaction in the instant case can in no manner be called as a device to avoid the payment of legitimate tax when both the intention and the documentation/evidences at hand point towards the legitimate nature of the SLBC arrangement. It is the settled position of Law that the assessee is well within its rights to run its business activity in any such manner that it may deem fit and proper. Therefore, the very allegation that the SCBL transaction is a paper and dubious transaction is not correct in the absence of any conclusive evidence brought on record by the A.O. to that effect. In our opinion, the A.O. cannot step into the shoes of the businessman and dictate how to run the business.

184 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 12.5.14. So far as the various decisions relied on by the Ld. DR as well as the lower authorities are concerned, the same are distinguishable and not applicable to the facts of the present case since in the instant case the Hon’ble Delhi High Court has already held the Lease Agreement to be genuine. We have already held in the preceding paragraph that the Lease Agreement entered into is in the nature of operating lease and that the assessee being the owner of the assets and leasing is one of its main objects as per its Object Clause in the Memorandum of Association, is entitled to claim depreciation on the assets leased as per the provisions of Section 32 read with Explanation 4A of Section 43(1). In view of our above discussion in the preceding paragraphs, we are of the considered opinion that the assessee is entitled to claim depreciation on the assets leased. Therefore, the Order of the Ld. CIT(A) on this issue is set aside and the first issue raised in the grounds of appeal challenging the disallowance of depreciation is allowed. Ground of Appeal Nos. 1 to 6 of the assessee are accordingly allowed.

185 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. 13. Grounds of Appeal No.7 relates to the disallowance of Rs.1,10,82,175/- being up-front fee debited in the Profit & Loss Account.

186 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. dispute with Tata Steel BSL Ltd., who acquired M/s. BSL. Therefore, the up-front fee of Rs.1,10,82,175/- debited in the P & L A/c on account of term loan taken by the assessee during the relevant year for acquiring the fixed asset as “Plant” is an allowable business expenditure. Accordingly, the Order of the Ld. CIT(A) on this issue is set aside and the Ground of Appeal No.7 raised by the assessee is allowed.

187 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. on loan taken for these equipments does not qualify as business expenditure. While deciding the first issue raised in the grounds of appeal challenging the disallowance of depreciation, we have already held the transaction to be genuine in nature and not a sham transaction in the light of decision of Hon’ble Jurisdictional Delhi High Court cited (supra), therefore, the Order of the Ld. CIT(A) denying the claim of interest expenditure of Rs.1,62,10,881/- is set aside and the grounds raised by the assessee on this issue is allowed.

Order pronounced in the open Court 03.08.2021.

Sd/- Sd/- (SUCHITRA KAMBLE) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER Delhi, Dated 3rd August, 2021 VBP/-

188 ITA.No.8617/Del./2019 M/s. Brace Iron & Steel Pvt. Ltd., New Delhi. Copy to

// By Order //

Assistant Registrar : ITAT Delhi Benches :