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Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
ORDER
PER BEENA PILLAI, JUDICIAL MEMBER Present appeal has been filed by assessee against final assessment order dated 27.02.2015 passed u/s. 143(3) r.w.s. 144C of the Act for Assessment Year 2011-12. Brief facts of the case are as under: 2. The assessee is engaged in the business of software development, sales and support services, technology and hardware design support and investment management services.
Page 2 of 8 IT(TP)A No. 1280/Bang/2018 It filed its return of income for year under consideration on 30/11/2011 declaring gross total income of Rs.1,86,22,84,930/-. The case was selected for scrutiny and notice under section 143(2) of the Act was issued, in response to which representative of assessee appeared before the Ld.AO and filed requisite details as called for. The Ld.AO observed that assessee had international transaction exceeding ₹ 15 crores and therefore the case was referred to transfer pricing officer. The transfer pricing officer determined arms length price vide order dated 6/01/2015, proposing adjustment under section 92CA at Rs.1,30,96,92,070/-.
3. On receipt of order under section 92 CA, the Ld.AO while passing draft assessment order disallowed the lease rental of Rs.1,16,39,162/- by treating it as capital expenditure. Aggrieved by the order of Ld.AO, assessee preferred appeal before the Ld.CIT(A). The Ld.CIT (A) upheld the addition is made by the Ld.AO/TPO. Aggrieved by the order of Ld.CIT(A) assessee is in appeal before us.
At the outset it is submitted that, assessee entered into MAP procedure before the Indian and USA competent authority, in respect of transfer pricing adjustments towards, technology hardware design support services, software development services, information technology enabled services and marketing support services provided to the AE. The Ld.AR submitted that assessee wishes to withdraw all the grounds relating to transfer pricing adjustments.
Page 3 of 8 IT(TP)A No. 1280/Bang/2018 Accordingly, ground nos. 1 to 17 as per original grounds of appeal are dismissed as withdrawn.
5. He submitted that, only issue that remains to be adjudicated is as alleged in the revised grounds of appeal filed on 23/03/21, as under: “Based on the facts and circumstances of the case, Intel Technology India Private Limited (hereinafter referred to as "Intel India" or "the Company" or " the Appellant" ), craves to prefer an appeal under section 253(1)(a) of the Income-tax Act,1961 ("the Act") in respect of the order passed by the Honorable Commissioner of Income-tax (Appeals)-1, Bangalore ["Hon'ble CIT (A)"]. The said appeal is preferred against the appellate order of the CIT (A) issued in connection with the assessment order of Assistant Commissioner of Income-tax, Large Tax Payers Unit, Circle-1, Bangalore ("Learned Assessing Officer or the "Learned AO") passed under section 143(3) of the Income-tax Act, 1961 ("the Act"), read with section 144C of the Act for the Assessment Year ("AY") 2011-12. Following grounds are preferred, each of which is without prejudice to one another:
1. The learned AO, learned Transfer Pricing Officer ("learned TPO") and the Hon'ble CIT(A) grossly erred in law and facts of the case in upholding the assessment order passed by the learned AO, which is bad in law and on facts. Disallowance of lease rentals of INR 11,639,162 treating the same as capital in nature 2.1. The Hon'ble CIT (A) has erred, in law and on facts, in upholding the position of the learned AO to treat the lease rentals paid to GE Money Financial Services Limited ("GE Money") towards finance lease transaction as a capital expenditure. 2.2. The Hon'ble CIT (A) has erred, in law and on facts, by disregarding the lease agreement entered between the Appellant and GE Money, which clearly states that the Appellant is not the owner of the vehicles. 2.3. The Hon'ble CIT (A) has erred, in law and on facts, by treating the Appellant as owner of vehicles by merely relying on the documents registered with Road Transport Authority or Regional Transport Office ("RTO"), thereby disregarding the substance of the lease agreement, which states that GE Money is the true owner of the vehicles.
Page 4 of 8 IT(TP)A No. 1280/Bang/2018 2.4. The Hon'ble CIT (A) has erred, in law and on facts, in not appreciating that the learned AO has disregarded the Circular 2 of 2001 dated February 9, 2001, issued by Central Board of Direct Taxes ("CBDT") which is binding on the learned AO, whereby it is clarified that the Accounting Standard 19 issued by the Institute of Chartered Accountants of India, that provides for capitalisation of asset by the lessee in the financial transactions, will have no implications on the allowance of depreciation on assets under the provisions of the Act. 2.5 The Hon'ble CIT (A) has erred, in law and on facts, in disregarding the judicial precedents relied upon by the Appellant in relation to treatment of lease rentals in a lease transaction, thereby specifically disregarding the decision of Honourable Supreme Court in the case of I.C.D.S Limited vs CIT [350 ITR 527] which was subsequently followed by the jurisdictional Honourable Bangalore Tribunal in the case of JCIT vs HP India Sales Private Limited ['TA No 1134 & 1136 of 2014] and held in favour of the Assessee. 2.6. The Hon'ble CIT (A) has erred, in law and on facts, by stating that the absence of confirmation from GE Money would render the claim of the Appellant as invalid, without appreciating the fact that GE Money had closed down its business operations and Appellant was not in a position to obtain any further documents related to lease rentals. 2.7. Without prejudice to the above, the Hon'ble CIT (A) and learned AO has erred, in law and on facts in not providing a deduction of INR 11,25,376 that represents the interest component in the lease rentals paid to GE Money. 2.8. Without prejudice to the above, the Hon'ble CIT (A) and learned AO have erred, in law and on facts in not providing depreciation on the principal component of the lease rentals paid to GE Money.
Other grounds The Learned AO has erred in computing interest under section 234B and section 234C of the Act. The Appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided.”
Page 5 of 8 IT(TP)A No. 1280/Bang/2018 Brief facts relating to the above issue are as under: 6. During the year under consideration, assessee took vehicles on Lease and paid lease rentals amounting to ₹ 1,16,39,162. It is submitted that the vehicles were under Lease, in terms of Accounting Standard 19 and said vehicles were capitalised in the books of account and corresponding depreciation was claimed as per Companies Act 1956. The Ld.AO was of the opinion that, assessee was not the owner of the leased assets, and assessee was not eligible for claiming depreciation under section 32 of the Act. He thus disallowed ₹ 1,16,39,162. The Ld.CIT(A) upheld the addition made by the Ld.AO.
Before us, the Ld.AR submitted that, during the course of assessment proceedings assessing officer enquired about the details of lease rentals and sought explanation for treating the same as revenue expenditure. He submitted that assessee provided all details and submitted that assessee had capitalised the said asset as per Accounting Standard 19 and had to accordingly claimed depreciation on the same.
The Ld.AR submitted that, assessee acquired certain vehicles on Lease from GE Money Financial services Ltd. He placed reliance on the copy of Master Service Agreement entered between assessee and GE Money Financial placed at page 101- 122 of paper book. Referring to Para 4.1 of the agreement, the Ld.AR submitted that GE Money shall continue to be the owner of each vehicle for all intents and purposes, and that, assessee is holding the rights in relation shall be for the use in possession Page 6 of 8 IT(TP)A No. 1280/Bang/2018 thereof throughout the lease. He also drew our attention to clause 26(a) of the agreement, wherein it is agreed that no title or right in the assets shall pass to the lessee being the assessee, except the Lease rights, expressly granted under the agreement. It is submitted by the Ld.AR that GE Money Financial Services are the owners of the vehicles. It is also submitted that the payment of insurance, tax and other charges by the lessee during the lease, are part and parcel of the lease agreements and would not conclude that assessee is the owner of the vehicles.
The Ld.CIT(A) observed that all the vehicles are registered with the Road transport authority in the name of assessee or its employees and they were hypothecated to the lessor indicating that the transaction is one of finance and not that of lease. The Ld.CIT(A) also observed that in a standard lease transaction the assets are registered in the name of the owner which is not the case in the present facts. The Ld.CIT(A) thus upheld the action of Ld.AO. Aggrieved by the order of Ld.CIT(A) assessee is in appeal before us. We have perused submissions advanced of both sides in the light of records placed before us.
It has been submitted by the Ld.AR that the issue needs to be analysed based on the principles laid down by Hon’ble Supreme Court in case of ICDS Ltd reported in (2013) 350 ITR 527. It is submitted that the clauses in the agreement before Hon’ble Supreme Court in case of ICDS is similar to the master service agreement between assessee and GE money.
Page 7 of 8 IT(TP)A No. 1280/Bang/2018
We note that authorities below have not considered the decision of Hon’ble Supreme Court before rejecting assessee’s submissions. As the issue revolves around whether the transaction between assessee and Lessor is one of finance lease or not, it is necessary to analyse the issue in accordance with the principles laid down by Hon’ble Supreme Court in case of ICDS Ltd (supra) in the light of the Master services agreement between assessee and the lessor. We are accordingly remanding this issue back to the Ld.AO to verify the transaction between assessee and GE Money based on the principles laid down by Hon’ble Supreme Court in ICDS Ltd (supra). Accordingly grounds raised by assessee stands allowed for statistical purposes. In the result appeal filed by assessee stands allowed for statistical purposes. Order pronounced in the open court on 11th October, 2021.