J.S.S. STEELITALIA LTD.,GURGAON vs. DCIT, NEW DELHI

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ITA 2631/DEL/2016Status: DisposedITAT Delhi09 December 2019AY 2012-1324 pages

In favour of the Revenue: the assessee's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal dismissed the appeal filed by the assessee. Regarding the first issue concerning the finance lease installments, the Tribunal noted that the assessee was unrepresented and no material was brought before it to persuade it to take a view different from that of the Ld. CIT(A). The Ld. CIT(A) had, in turn, relied on the AO's reasoning that the lease agreement provided for the transfer of title of the asset to the assessee upon expiry of the lease term, making it a finance lease. This nature of the lease meant the asset was practically permanently available to the assessee, and the payments were considered capital in nature. Consequently, the disallowance of finance lease installments was upheld. Regarding the second issue, the Ld. CIT(A) had deleted the addition of Rs. 91,345/- on account of interest on capital expenditure, finding that the Assessing Officer had failed to establish a one-to-one correlation between borrowed funds and capital work-in-progress. The Tribunal did not interfere with this deletion. The operative direction was that the appeal was dismissed.

What were the facts?

The assessee, J.S.S. Steelitalia Ltd., filed an appeal before the Income Tax Appellate Tribunal (ITAT) challenging the order dated February 19, 2016, passed by the Commissioner of Income Tax (Appeals)-1, Gurgaon. The appeal pertained to Assessment Year 2012-13. The Assessing Officer (AO) had, vide an order dated February 5, 2015, disallowed finance lease installment payments of Rs. 1,52,31,251/- claimed as revenue expenditure by the assessee, treating it as capital expenditure. The AO also allowed eligible depreciation of Rs. 1,56,97,029/-. The Ld. CIT(A) partly allowed the assessee's appeal, deleting an addition of Rs. 91,345/- related to interest on capital expenditure but otherwise upholding the AO's decision on the lease installments. The ITAT heard the Revenue's representative, Ms. Rakhi Vimal, Sr. DR, as the assessee was unrepresented.

What were the issues?

1. Whether the finance lease installment payments of Rs. 1,52,31,251/- are to be treated as revenue expenditure or capital expenditure, as per Section 37 of the Income Tax Act, 1961. Assessee's contention: The assessee argued that it had capitalized the leased equipment and paid lease rent to the lessor. While depreciation on the capitalized equipment was debited to the P&L account and added back to income, the lease rent paid, representing the principal amount, was claimed as revenue expenditure. The assessee relied on the CBDT Circular No. 2 of 2001 and decisions of the Rajasthan High Court in CIT vs. Banswara Synthetic Ltd. and the Supreme Court in ICDS Ltd. vs. CIT. Revenue's contention: The Revenue, through the AO and Ld. CIT(A), contended that the lease agreement stipulated the transfer of title to the asset to the assessee upon expiry of the lease term, making it a finance lease for all practical purposes, akin to acquisition of a capital asset. Therefore, the payments were capital in nature and not deductible as revenue expenditure. 2. Whether the addition of Rs. 91,345/- on account of proportionate interest on capital expenditure is to be deleted, as per Section 36(1)(iii) of the Income Tax Act, 1961. Assessee's contention: The assessee argued that unless a one-to-one correlation of borrowed funds used for capital work-in-progress (CWIP) is established, the interest cannot be disallowed. The AO failed to establish such a correlation and wrongly relied on CIT vs. Abhishek Industries Ltd. The assessee also stated it had no term loan for capital expenditure during the relevant period. Revenue's contention: The judgment does not record specific arguments from the Revenue on this issue, but the AO's order implies disallowance based on the principle that interest on borrowed capital for acquiring capital assets is part of the asset's cost.

Which sections of the Income-tax Act were involved?

Section 37,Section 36(1)(iii),Section 32

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH: ‘E’: NEW DELHI

Before: SHRI H.S. SIDHU

[A] This appeal has been filed by the assessee against the impugned appellate order dated 19.02.2016 passed by Learned Commissioner of Income Tax (Appeals)-1, Gurgaon, [in short, “Ld.CIT(A)”] pertaining to Assessment Year 2012-13. The Assessee has raised following grounds of appeal:-

“1. On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeal) erred in confirming the addition / disallowance of finance lease installments paid by the company of Rs. 1,52,31,251/- by the learned Assessing Officer. Page 1 of 24

ITA No.- 2631/Del/2016. J.S.S. Steelitalia Ltd. 2. On the facts and circumstances of the case and in law, the disallowance / addition of Rs. 1,52,31,251/- made by the Assessing Officer is erroneous and contrary to the provisions of law and the CIT(A) should have deleted the same. 3. The appellant craves leave to add, alter, modify one or more ground of appeal before or at the time of appeal.”

[B] Vide Assessment Order dated 05.02.2015 passed under Section 143(3) of the Income Tax Act, 1961 (in short “the Act”). The relevant portion of the Assessment Order dated 05.02.2015 is reproduced as under:-

ITA No.- 2631/Del/2016. J.S.S. Steelitalia Ltd.

ITA No.- 2631/Del/2016. J.S.S. Steelitalia Ltd.

”

[C] The Assessee filed appeal before the Ld. CIT(A). Vide impugned appellate order dated 19.02.2016, the Ld. CIT(A) partly allowed the assessee’s appeal. The relevant portion of the order of the Ld. CIT(A) is reproduced as under:

ITA No.- 2631/Del/2016. J.S.S. Steelitalia Ltd. ITA No.- 2631/Del/2016. J.S.S. Steelitalia Ltd. ITA No.- 2631/Del/2016. J.S.S. Steelitalia Ltd. ITA No.- 2631/Del/2016. J.S.S. Steelitalia Ltd. ITA No.- 2631/Del/2016. J.S.S. Steelitalia Ltd. ITA No.- 2631/Del/2016. J.S.S. Steelitalia Ltd. ITA No.- 2631/Del/2016. J.S.S. Steelitalia Ltd. ITA No.- 2631/Del/2016. J.S.S. Steelitalia Ltd. ITA No.- 2631/Del/2016. J.S.S. Steelitalia Ltd. ITA No.- 2631/Del/2016. J.S.S. Steelitalia Ltd. ITA No.- 2631/Del/2016. J.S.S. Steelitalia Ltd. ITA No.- 2631/Del/2016. J.S.S. Steelitalia Ltd. ITA No.- 2631/Del/2016. J.S.S. Steelitalia Ltd. ITA No.- 2631/Del/2016. J.S.S. Steelitalia Ltd. ITA No.- 2631/Del/2016. J.S.S. Steelitalia Ltd. ITA No.- 2631/Del/2016. J.S.S. Steelitalia Ltd. ITA No.- 2631/Del/2016. J.S.S. Steelitalia Ltd.

“

ITA No.- 2631/Del/2016. J.S.S. Steelitalia Ltd.

[D] This present appeal has been filed by the assessee against the aforesaid impugned appellate order dated 19.02.2016 of the Ld. CIT(A). At the time of hearing, Revenue was represented by Ms. Rakhi Vimal, the learned Senior Departmental Representative (“Ld. Sr. DR”, for short). However, none was present from the assessee’s side. In the absence of any representation from assessee’s side, at the time of hearing before us, we heard the Ld. Sr. DR; who relied upon the order dated 05.02.2015 of the Assessing Officer and the aforesaid impugned order dated 19.02.2016 of the Ld. CIT(A). After perusal of the materials on record, including the order of the AO and the aforesaid impugned order dated 19.02.2016 of the Ld. CIT(A), we find that the Ld. CIT(A) has passed speaking order on merits. Relevant portion of the impugned order of the Ld. CIT(A) has already been reproduced in foregoing paragraph [C] of this order. We find that the Ld. CIT(A) has given detailed reasons for his decision on merits in the aforesaid impugned appellate order dated 19.02.2016 of Ld. CIT(A). During appellate proceedings in Income Tax Appellate Tribunal (“ITAT”, for short) no material has been brought for our consideration to persuade us to take a view different from the view taken by the Ld. CIT(A) in the impugned order on merit. After hearing the Ld. Sr. DR and after perusal of materials on record, and further, in view of the foregoing discussion, we decline to interfere with the aforesaid impugned appellate order dated 19.02.2016 of Ld. CIT(A), and accordingly, this appeal is dismissed.

[E] Before we part; we explicitly clarify that the assessee will be at liberty to approach ITAT for restoration of the appeal in accordance with Proviso to ITA No.- 2631/Del/2016. J.S.S. Steelitalia Ltd. Rule 24 of Income Tax (Appellate Tribunal), Rules, 1963. If the assessee does approach ITAT for restoration of the appeals in ITAT, the matter will be considered in accordance with law having regard to the facts and circumstances.

[F] In the result, appeal filed by Assessee is dismissed.

Order pronounced in the open court on 09/12/2019.

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