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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: SHRI G.S. PANNU (VP) & SHRI RAM LAL NEGI (JM)
आदेश / O R D E R PER RAM LAL NEGI, JM These appeals have been filed by the assessee against the orders dated 10.02.2010, 24.09.2010 and 12.09.2011 passed by the Commissioner of Income Tax (Appeals) (for short ‘the CIT (A)’)-41, Mumbai, for the assessment years 2006-07, 2007-08 and 2008-09 respectively, whereby the Ld. CIT (A) has partly allowed the appeal of the assessee pertaining to the assessment year 2006-07, dismissed the appeal pertaining to the assessment year 2007-08 and
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allowed the appeal pertaining to the assessment year 2008-09, filed against the assessment orders passed 143 (3) of the Income Tax Act, 1961 (for short ‘the Act’). Since, these appeals pertain to the same assessee and some of the issues involved are common in all the appeals, the same were clubbed, heard together and are being disposed of by this common order for the sake of convenience. ITA No. 3371/MUM/2010 (Assessment Year: 2006-07) Brief facts of the case are that the assessee engaged in the business of manufacture of Ready mixed Concrete Aggregates, filed its return of income for the assessment year under consideration declaring nil income. Since, the case was selected foe scrutiny, the AO issued notice u/s 143 (2) and 142 (1) of the Act to the assessee. In response thereof the authorized representative (AR) of the assessee appeared before the AO and furnished the details with respect to receipt and expenses. The AO after hearing the AR made disallowance of Rs. 3,83,058/- on account of claim of lease rental on assets taken on financial lease, Rs. 2,00,000/- on account of professional and consultancy fees paid by the assessee, Rs. 2,28,600/- on account of capital expenditure under the head computer expenses, Rs. 3,41,969/- out of the total claim made by the assessee under the head miscellaneous expenses, Rs. 1,13,422/- on account of claim of depreciation of UPS and Inverter, Rs. 1,60,893/- u/s 2(24)(x) r.w.s 36(1) (va) of the Act and Rs. 4,77,727/- u/s 40(a)(ia) of the Act and determined the total income of the assessee at Rs. 6,34,85,124/- under section 115JB and further computed the tax liability at Rs. 53,42,272/- under MAT provisions. 2. The assessee challenged the assessment order before the Ld. CIT (A). The Ld. CIT (A) after hearing the assessee partly allowed the appeal filed by the assessee. Still aggrieved, the assessee has challenged the impugned order passed by the Ld. CIT (A) on the following grounds:-
The learned Commissioner of Income-tax (Appeals) erred in upholding the action of the learned Assistant Commissioner of Income-tax (hereinafter referred to as
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the Assessing Officer') in disallowing a sum of Rs. 3,83,058/- out of total lease rental expense of Rs.9,77,028/- incurred by the appellant. 2. (a) The learned Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in restricting the claim of the appellant for depreciation on UPS and Inventor @ 15% as against 60%, by treating/ the same as plant & machinery and disallowed a sum of Rs. 1,13,422/-. (b) Without prejudice to what is stated above, the appellant submits that UPS are in the nature of energy saving device and as such entitled to depreciation @ 80%. 3. The learned Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in disallowing professional fees amounting to Rs.55,579/- and payment to contractors amounting to Rs. 4,22,148/- on account of deposit of tax deducted at source to the extent of surcharge applicable on the principal expenditure beyond the due date. 4. The appellant submits that during the previous year relevant to assessment year 2002-03, 2003-04 and 2004-05 it has claimed plant shifting expense amounting to Rs.30,71,919/-, Rs.5,16,613/- and Rs.49,31,086/-. However, while completing assessment for assessment year 2002-03, 2003-04 & 2004-05 plant shifting expenses claimed were disallowed and it was held that one fifth of the said expenses would be allowed in respective assessment year and in four subsequent assessment years. Accordingly, the appellant has filed revised computation of total income claiming deduction ofRs.614,384/-, Rs. 103,322/- and Rs.9,86,297/-. However, while passing the assessment order, deduction in respect of plant shifting expenses were not allowed. The appellant submits that the deduction of Rs.6,14,384/-, Rs.1,03,322/- & Rs.9,86,217/- for assessment year 2002-03, 2003- 04 & 2004-05 respectively ought to be allowed as an allowable expenditure for the assessment year under appeal.
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During the previous year relevant to assessment year 2004-05, the appellant has claimed deduction of Rs.326,528/- being amalgamation expenses. However, while completing the assessment the deduction in respect of amalgamation were disallowed and it was held that one fifth of the said expenses would be allowed in assessment year 2004-05 and in four successive assessment years. The appellant submits that while passing the assessment order for assessment year under appeal deduction of Rs.65,306/- being 1/5th of amalgamation expenses were not allowed. The appellant submits that the deduction of Rs.65,806/- ought to be allowed as an allowable expenditure for the assessment year under appeal. 6. During the previous year relevant to assessment year 2005-06, the appellant has claimed deduction of Rs.2,47,295/- being professional and consultancy expenses. However, while completing the assessment the deduction in respect of professional and consultancy expenses was disallowed and it was held that one fifth of the said expenses would be allowed in assessment year under appeal and in four successive assessment years. The appellant submits that while passing the assessment order for assessment year 2006-07 deduction of Rs 49,459/- being 115th of professional and consultancy expenses were not allowed. The appellant submits that the deduction of Rs. 49,459/- ought to be allowed as an allowable expenditure for the assessment year under appeal. 7. During the previous year relevant to assessment year 2005-06, the appellant has claimed deduction of Rs.77,161/- being computer expenses. However, while completing the assessment the deduction in respect of computer expenses were disallowed and it was held that depreciation on the same is allowed at the rate of 60%. The appellant submits that while passing the assessment order for assessment year under appeal deduction of depreciation of Rs. 18,518/-, @60% of W.D.V. of
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Rs.30,864/- (77,161-46,297) has not been allowed. The appellant submits that the deduction of Rs. 18,518/- ought to be allowed as an allowable expenditure for the assessment year under appeal. 8. (a) The learned Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer is levying interest under section 234B of the Act amounting to Rs.4,28,794/-. (b) The appellant submits that the return of income filed, there was no self assessment tax liability and consequently, there was no liability to pay interest under section 234B. while completing the assessment, deferred tax has been added in computing the book profit for computing the tax liability under section 115JB on account of retrospective amendment of section 115JB and in such a case interest under section 234B ought not to have been levied. 9. The appellant submits that the Assessing Officer be directed to delete i. the disallowance of Rs. 3,83,058/- out of lease rental charges; ii. (a) to allow depreciation @ 60% on UPS purchased during the previous year amounting to Rs.2,52.049/-; (b) Without prejudice to what is stated above, the appellant submits that UPS are in the nature of energy saving device and as such entitled to depreciation @ 80%. iii. to delete disallowance of a sum of Rs. 4,77,727/- out of professional fees and payment to contractor on account of deposit of tax deducted at source to the extent of surcharge applicable on the principal expenditure beyond the due date. iv. to allow a deduction of Rs. 6,14,384/-, Rs. 1,03,322/- & Rs. 9,86,217/- being 1/5th of plant shifting expenses claimed in assessment years 2002-03, 2003- 04 & 2004-05 respectively, for the previous year relevant to assessment year appeal; v. to allow deduction of Rs.65,306/- being 1/5th of amalgamation expenses claimed in assessment year
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2004-05, for the previous year relevant to assessment year under appeal; vi. to allow deduction of Rs.49,459/- being 1/5th of Professional Consultancy fees claimed in assessment year 2005-06, for the previous year relevant to assessment year under appeal. vii. to allow deduction of Rs.18,519/- being depreciation of computer expenses capitalised during previous year relevant to assessment year 2005-06, for the assessment year under appeal; viii. to delete interest levied under section 234B of the Act amounting to Rs.4,28,794/-; and to modify the assessment in accordance with the provisions of the Act. 10. Each of the above grounds of appeals are independent and without prejudice to each other. 11. The appellant craves liberty to add, to alter and /or amend the grounds of appeal as and when given. 3. Vide ground No. 1 of the appeal, the assessee has challenged the action of the Ld. CIT (A) in upholding the findings of the AO disallowing a sum of Rs. 3,83,058/- out of the total lease rental expense of Rs. 9,77,028/- incurred by the assessee. During the course of assessment proceedings, it was noticed that the lease rental expenses claimed by the assessee pertained to Motorcar lease rental paid to leasing company. The assessee had capitalized the cost of lease car and created liability of the leasing company. The assessee had charged the interest portion to P & L account as lease finance charges as per Accounting Standard (AS) – 19, however, for the Income Tax purposes the assessee had not claimed depreciation on lease cars and claimed the entire lease rent as deduction. It was further seen that the lease was in the nature of finance lease and not in the nature of operating lease. The assets being in the name of the lessor, is merely in the nature of a hypothecation for the loan obtained for purchase of the assets. The AO holding that for all purposes including use the assets belong to the assessee and the lease rental claimed is nothing but payment of loan for the asset, allowed deduction of Rs. 5,94,150/- as against
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the claim of lease rental made in the P&L account amounting to Rs. 9,77,208/- on account of interest and depreciation and disallowed the balance amount of Rs. 3,83,058/-. The AR contended before the Ld. CIT (A) that during the previous year relevant to the assessment year under consideration, it had paid lease rentals amounting to Rs. 9,77,208/- in respect of Motorcars taken on lease. As required by the AS-19, the assessee segregated the entire amount of lease rental into two portions i.e. the principal and the interest. The lease charges broken off as such are debited to the profit and loss account under the head lease finance charges. However, for the computation of total income the entire amount of lease rental are claimed as deduction. The assessee relying on the CBDT Circular No. 2/2001 dated 02.09.2001 submitted that the said circular was issued in relation to depreciation claimed by the lessee in respect of the assets recognized by it in accordance with the provisions of AS-19. Therefore, the same principal applies to lease rentals paid by the appellant. However, the Ld. CIT (A) rejected the contention of the assessee and confirmed the disallowance made by the AO. 4. In this background, the Ld. counsel for the assessee submitted before us that the similar issues were dealt with by the then CIT (Appeals) in assessee’s own case for the AYs 2003-04, 2004-05 and 2005-06 and the respective Commissioners (Appeals) decided the same in favour of the assessee holding that the lessor is entitled to deduction of depreciation and the lessee is entitled to deduction of lease rental as per the CBDT Circular No. 2/2001 dated 09.02.2001. The Ld. counsel further pointed out that this issue is covered in favour of the assessee by the judgment of the Hon’ble Supreme Court in the case of ICDS Ltd. vs. CIT 350 ITR 527 (SC) and the judgment of the Hon’ble Bombay High Court in the case of CIT vs. Apollo Finvest Ltd. 382 ITR 33 (Bombay). The Ld. counsel further pointed out that the Ld. CIT (A) has not given any cogent and convincing reason for rejecting the concurrent findings of his predecessor in the assessee’s own appeals for the assessment years 2003-
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04, 2004-05 and 2005-06. The Ld. counsel accordingly submitted that since the impugned order is not in accordance with the ratio laid down by the Hon’ble Supreme Court and the Hon’ble Bombay High Court referred above, the same is liable to be set aside. 5. On the other hand, the Ld. Departmental Representative (DR) relying on the order passed by the Ld. CIT (A) submitted that in case of finance lease the ownership of the lease assets remains with the lessor but the risk of reward of lease asset is transferred to the lessee and therefore the lessee becomes the owner. Accordingly, the AO has rightly allowed deduction of only Rs. 5,94,150/- on account of interest and depreciation and disallowed the remaining amount. The Ld. DR further submitted that since the Ld. CIT (A) has rightly confirmed the action of the AO, there is no merit in the appeal of the assessee. 6. We have heard the rival submissions of the parties and also gone through the entire material on record including the cases relied upon by the parties. The Ld. CIT (A) has affirmed the findings of the AO relying on the decision of the ITAT, Mumbai in the case of DCIT vs. Marico Industries, ITA No. 3373/Mum/2002, AY 1995-96. In the said case, the Tribunal has held that in case of finance lease, lessee is the owner of the assets for all practical purposes and depreciation is allowable to the lessee and not to the lessor. As pointed out by the Ld. counsel for the assessee, the then CIT (A) has decided the similar issue in favour of the assessee in the assessee’s own case for the AY 2003-04. The operative part of the order of the Ld. CIT (A) reads as under
“ I have heard the A.R. and I find merit in the contention of the A.R. of the appellant. The asset does not belong to the appellant as such both principal and interest has to be paid by it. Since the appellant has used them in business, it is an allowable expenditure. Accounting treatment has nothing to do with such allowance as has been rightly pointed out by the A.R. quoting CBDT Circular and Supreme Court decision in the case of
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Kedarnath Jute Mfg. Co Ltd. vs. CIT (1971) 82 ITR 363. As such the A.O directed to allow the expenditure as claimed by the appellant on this issue.
We further notice that in the subsequent assessment years i.e. for the AY 2004-05 and 2005-06, the then Commissioners (Appeals) allowed the identical claim of the assessee by following the decision of their predecessor passed in the assessee’s own case for the AY 2003-04 referred above. Further, as pointed out by the Ld. counsel, the Central Board of Direct Taxes (CBDT) vide Circular No. 2 of 2001 dated 02.09.2001 has clarified that the New Accounting Standard on lease by the Institute of Chartered Account of India which require capitalization of the asset by the lessee in finance lease transaction by itself will have no implication on the allowance of depreciation on assets under the provisions of the Income Tax Act. In the light of the aforesaid clarification, the Ld. counsel submitted that the treatment given in the books is only to comply with the provisions of the Companies Act as required under AS-19 and will not in any way change the treatment of such transaction under the provisions of the Act. Para 3 of the said circular reads as under:- “3. It has come to the notice of the Board that the New Accounting Standard on “leases” issued by the Institute of Chartered Accountants of India require capitalization of the asset by the lessees in financial lease transaction. By itself, the accounting standard will have no implication on the allowance of depreciation on assets under the provisions of the Income-tax Act.” 8. Further, the Ld. counsel relied on the judgment of the Hon’ble Supreme Court in the case of ICDS Ltd. vs. CIT (supra), wherein it has been held that the lessor is the owner of the asset and eligible to claim depreciation on the vehicles given on lease which implies that the lessee should not be granted the deduction on account of depreciation but should be granted claimed for deduction of the lease rentals. The findings of the Hon’ble Apex Court read as under:-
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“19. We may now advert to the first requirement i.e. the issue of ownership. No depreciation allowance is granted in respect of any capital expenditure which the assessee may be obliged to incur on the property of others. Therefore, the entire case hinges on the question of ownership, if the assessee is the owner of the vehicles, then he will be entitled to the claim on depreciation, otherwise, not.” 22. A scrutiny of the material facts at hand raises a presumption of ownership in favour of the assessee. The vehicle, along with its keys, was delivered to the assessee upon which, the lease agreement was entered into by the assessee with the customer. Moreover, the relevant clauses of the agreement between the assessee and the customer specifically provided that: (i) The assessee was the exclusive owner of the vehicle at all points of time; (ii) If the lessee committed a default, the assessee was empowered to re-possess the vehicle (and not merely recover money from the customer); iii) At the conclusion of the lease period, the lessee was obliged to return the vehicle to the assessee; iv) The assessee had the right of inspection of the vehicle at all times. For the sake of ready reference, the relevant clauses of the lease agreement are extracted hereunder:- “2. Lease Rent The lessee shall, during the period of lease punctually pay to the lessor free of any deduction whatsoever as rent for the assets the sum of moneys specified in the Schedule ‘B’ hereto. All rents shall be paid at the address of the Lessor shown above or as otherwise directed by the Lessor in writing. The rent shown in Schedule ‘B’ shall be paid month on 1st day of each month and the first rent shall be paid on execution thereof. 4. Ownership
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The assets shall at all times remain the sole and exclusive property of the lessor and the lessee shall have no right, title or interest to mortgage, hypothecate or sell the same as bailee 9. Inspection The Lessor shall have the right at all reasonable time to enter upon any premises where the assets is believed to be kept and inspect and/or test the equipment and/or observe its use. 18. Default If the lessee shall make default in payment of moneys or rent payable under the provisions of this agreement, the Lessee shall pay to the Lessor on the sum or sums in arrears compensation at the rate of 3% per month until payment thereof, such compensation to run from the day to day without prejudice to the lessor’s rights under any terms, conditions and agreements herein expressed or implied. All costs incurred by the Lessor in obtaining payment of such arrears or in endeavoring to trace the whereabouts of the equipments or in obtaining or endeavouring to obtain possession thereof whether by action, suit or otherwise, shall be recoverable from the lessee in addition to and without prejudice to the lessors right for breach of this lease. 19. Expiration of Lease: Upon the expiration of this Lease, the Lessee shall deliver to the Lessor the assets at such place as the Lessor may specify in good repair, condition and working order. As soon as the return of the asset the Lessor shall refund the amount of security deposit. If the lessee fails to deliver the equipment to the Lessor in accordance with any direction given by the Lessor, the Lessee shall be deemed to be the tenant of the assets at the same rental and upon the same terms herein expressed and such tenancy may be terminated by the Lessor immediately upon default by the lessee hereunder or upon 7 daysnotice previously given.” 24. The only hindrance to the claim of the assessee, which is also the lynchpin of the case of the Revenue, is Section 2(30) of the MV Act, which defines ownership as follows: -
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“owner” means a person in whose name a motor vehicle stands registered, and where such person is a minor, the guardian of such minor, and in relation to a motor vehicle which is the subject of a hire-purchase agreement, or an agreement of lease or an agreement of a hypothecation, the person in possession of the vehicle under that agreement.” 26. We do not find merit in the Revenue’s argument for more than one reason: (i) Section 2(30) is a deeming provision that creates a legal fiction of ownership in favour of lessee only for the purpose of the MV Act. It defines ownership for the subsequent provisions of the MV Act, not for the purpose of law in general. It serves more as a guide to what terms in the MV Act mean. Therefore, if the MV Act at any point uses the term owner in any Section, it means the one in whose name the vehicle is registered and in the case of a lease agreement, the lessee. That is all. It is not a statement of law on ownership in general. Perhaps, the repository of a general statement of law on ownership may be the Sale of Goods Act; (ii) Section 2(30) of the MV Act must be read in consonance with sub-sections (4) and (5) of Section 51 of the MV Act, which were referred to by Mr. S. Ganesh, learned senior counsel for the assessee. The provisions read as follows: - “(4) No entry regarding the transfer of ownership of any motor vehicle which is held under the said agreement shall be made in the certificate of registration except with the written consent of the person whose name has been specified in the certificate of registration as the person with whom the registered owner has entered into the said agreement. (5) Where the person whose name has been specified in the certificate of registration as the person with whom the registered owner has entered into the said agreement, satisfies the registering authority that he has taken possession of the vehicle from the registered owner owing to the default of the registered owner under the provisions of the said agreement and that the registered owner refuses to deliver the certificate of registration or has absconded, such authority may, after giving the registered owner an opportunity to make such
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representation as he may wish to make (by sending to him a notice by registered post acknowledgment due at his address entered in the certificate of registration) and notwithstanding that the certificate of registration is not produced before it, cancel the certificate and issue a fresh certificate of registration in the name of the person with whom the registered owner has entered into the said agreement: Provided that a fresh certificate of registration shall not be issued in respect of a motor vehicle, unless such person pays the prescribed fee: Provided further that a fresh certificate of registration issued in respect of a motor vehicle, other than a transport vehicle, shall be valid only for the remaining period for which the certificate cancelled under this sub-section would have been in force.” Therefore, the MV Act mandates that during the period of lease, the vehicle be registered, in the certificate of registration, in the name of the lessee and, on conclusion of the lease period, the vehicle be registered in the name of lessor as owner. The Section leaves no choice to the lessor but to allow the vehicle to be registered in the name of the lessee Thus, no inference can be drawn from the registration certificate as to ownership of the legal title of the vehicle; and (iii) if the lessee was in fact the owner, he would have claimed depreciation on the vehicles, which, as specifically recorded in the order of the Appellate Tribunal, was not done. It would be a strange situation to have no claim of depreciation in case of a particular depreciable asset due to a vacuum of ownership. As afore- noted, the entire lease rent received by the assessee is assessed as business income in its hands and the entire lease rent paid by the lessee has been treated as deductible revenue expenditure in the hands of the lessee. This reaffirms the position that the assessee is in fact the owner of the vehicle, in so far as Section 32 of the Act is concerned. 29. Therefore, in the facts of the present case, we hold that the lessor i.e. the assessee is the owner of the vehicles. As the owner, it used the assets in the course of its business, satisfying both requirements of Section 32 of the Act and hence,
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is entitled to claim depreciation in respect of additions made to the trucks, which were leased out.” 9. In the said case, the assessee as a part of its business had leased out the vehicles purchased by it from the manufacturers, to its customers. The lessees were registered as the owners of the vehicles in the certificate of registration. The assessee claimed depreciation as it had been financed by the assessee. The AO disallowed the claim of the assessee on the ground that the assessee use of these vehicles was only by way of leasing out to others and not as actual user of the vehicles in the business of running them on hire. In the first appeal the CIT (A) allowed the claim of the assessee. In the further appeal, the ITAT affirmed the findings of the CIT (A). The revenue challenged the order of the CIT (A) before the High Court. The Hon’ble High Court reversed the findings of the ITAT holding that since the vehicles were not registered in the name of the assessee and had only financed the transaction, it could not held to be the owner of the vehicle. Therefore, the assessee is not entitled to claim depreciation in respect of the vehicles in question. The Hon’ble Supreme Court reversed the findings of the High Court and allowed the appeal of the assessee holding that the assessee is entitled for the depreciation claimed. 10. Hence, in our considered view, the claim of the assessee is covered in favour of the assessee by the decision of the Hon’ble Supreme Court in the case of ICDS Ltd. vs. CIT (A) (supra). We therefore following the ratio laid down by the Hon’ble Supreme Court in the case discussed above, set aside the findings of the Ld. CIT (A) and allow this ground of appeal and accordingly direct the AO to delete the addition made on account of disallowance of lease rentals. 11. Vide Ground No. 2(a), the assessee has challenged the action of the Ld. CIT (A) in upholding the findings of the AO vide which the AO restricted the claim of the assessee of depreciation on UPS and Inverter to 15% as against 60% claimed by the assessee, treating the same as plant and machinery and making disallowance amounting to Rs. 1,13,422/-. During the course of
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assessment proceedings, it was seen from the details furnished by the assessee that the assessee had purchased UPS and Inverters amounting to Rs. 2,52,049/-. The AO asked the assessee to justify the claim of depreciation @ 60% on the said assets. In response thereof the assessee submitted that the term computer system defined under Explanation (a) to sub-section (xi) of section 36(1) of the Act and also definition given by the ICAI in its study manual PE-II, Information Technology Paper- VI, the computer includes an input device CPU and an output device i.e. printers etc., which are the integral part of the computer system. However, the AO holding that the UPS and Inverters cannot be considered as an input or output devices, the claim of the assessee is not acceptable. Accordingly, the AO allowed the depreciation @ 15% treating the same as part of plant and machinery. 12. The Ld. counsel submitted before us that this issue is squarely covered by the judgment of the Hon’ble Bombay High Court in the case of CIT vs. Sarswat Infotech Ltd. Income Tax Appeal (L) No. 1243 of 2012 in which the Hon’ble High Court has dismissed the appeal filed by the revenue against the findings of the ITAT holding that depreciation on UPS is allowable @ 60%. The operative part of the judmgnet of Hon’ble High Court is reproduced below:- “5) In second appeal, the Tribunal by its order dated 14/03/2012 held that UPS is an integral part of the computer system and regulate the flow of the power to avoid any kind of damage to the computer network due to fluctuation in power supply which could lead to loss of valuable data. The Tribunal relied upon the decision of the Delhi High Court dated 20/01/2011 in the matter of CIT v. Orient Ceramics and Industries Ltd. in which UPS was held to be the part of the computer system and depreciation at 60% was allowed. Similarly, so far as ATMs are concerned, the Tribunal on finding of fact concluded that ATM cannot function without the held pf computer and would be a part of the computer used in the banking industry. Reliance was placed by the Tribunal upon the decision of the Delhi Bench of Tribunal in the matter of DCIT
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v. Global Trust Bank (ITA No. 474/D/09) wherein it has been held that ATM was a computer equipment and depreciation @ 60% was allowed. So far as the use of software is concerned, the Tribunal records a fact that the evidence of the use of the software on 31/03/2008 was produced before the Tribunal. Thus, the Tribunal held that depreciation @ 30% on software was rightly claimed. 6) “We note that the Tribunal has arrived at a finding of fact on all the three questions. The revenue has not been able to show that the above finding of fact is perverse. Thus, we do not see any reason to entertain question (i), (ii) and (iii) above.”
In the said case, the issue before the Hon’ble High Court was whether on the facts and circumstances of the case, the ITAT was right in holding that the depreciation on UPS is allowable @ 60%. The contention of the revenue was that the UPS is an electrical appliance for temporary supply of electricity, therefore it is in the nature of plant and machinery and therefore the assessee is eligible for depreciation @ 15%. The Hon’ble High Court dismissed the contention of the revenue and upheld the findings of the ITAT. Since, this issue has been decided by the Hon’ble High Court in favour of the assessee in the case of CIT vs. M/s Sarswant Infotech Ltd. (supra) and since the revenue has not brought to our notice any case law contrary to the judgment of the Hon’ble Bombay High Court discussed above, we do not find any merit in the contention of the Ld. DR. We therefore, allow this ground of appeal of the assessee and set aside the findings of the Ld. CIT (A) and further direct the AO to delete the addition. 14. The Ld. counsel for the assessee submitted that the assessee does not want to press Ground No. 2(b) of the appeal. Hence, we dismiss Ground No. 2(b) of the appeal as not pressed. 15. Vide Ground No. 3, the assessee has challenged the action of the Ld. CIT (A) in upholding the action of the AO in disallowing professional fees amounting
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to Rs. 55,579/- and payment made to the contractors amounting to Rs. 4,22,148/- on account of deposit of tax deduction at source to the extent of surcharge applicable on the principal expenditure beyond the due date. During the assessment proceedings, the AO observed that assessee had paid the TDS after the due date. Accordingly, the assessee was asked to justify as to why the principal amount involved should not be disallowed u/s 40(a) (ia). The assessee contended that a major portion of TDS amount was paid before the due date and only small amount was paid before the due date of filing of return. The assessee further contended that provisions of section 80IA has been amended with retrospective effect which allows the expenses provided the TDS so deducted is paid before the due date of filing of return. Therefore, the expenses should be allowed as deduction. However, the AO holding that the amendment is not applicable in the case of the assessee added back the said amount to the income of the assessee. In the first appeal, the Ld. CIT (A) confirmed the addition. 16. Before us, the Ld. counsel for the assessee submitted that this issue is covered by the judgment of the Hon’ble Calcutta High Court in the case of CIT vs. S.K. Tekriwal 361 ITR 432 (Cal) in which it has been held that no disallowance u/s 40(a)(ia) should be made in case of short deduction of the tax at source. The Ld. counsel further submitted that the amendment made to section 40(a)(ia) by the Finance Act 2010 provided that no disallowance is to be made where tax deducted at source has been paid on or before the due date for filing of return of income as per provisions of section 139 (1) of the Act. The Ld. counsel further submitted that the Hon’ble Supreme Court in the case of CIT V. M/s Calcutta Export Company in Civil Appeal Nos. 4339-4340 of 2018 dated April 24, 2018 has held that the amendment made to section 40(a)(ia) by the Finance Act, 2010 would apply retrospectively. Further, the Ld. counsel for the assessee submitted that in the present case the surcharge component in the dispute was deposited in the month of October 2006 while the due date of filing
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the return of income was 30th November, 2006 as had been extended by the CBDT vide order dated 24.10.2006 issued u/s 119 of the Income Tax Act. 17. On the other hand, the Ld. DR supported the concurrent findings of the authorities below. 18. We have perused the material on record including the cases relied upon by the Ld. counsel for the assessee in the light of the rival contentions of the parties. We notice that this issue is covered in favour of the assessee by the order of the Hon’ble Calcutta High Court in the case of CIT vs. S.K. Tekriwal (supra). In the said case, the assessee deducted tax u/s 194C(2) of the Act from the payment made to sub contractor. The revenue disallowed the payments invoking the provisions of section 40(a)(ia) on the ground that the assessee had deducted tax at 1% u/s 194C(2) as against the actual deduction to be made @ 10%. The Tribunal held that where tax was deducted by the assessee under the wrong provisions under a bona fide impression the provisions of section 40(a)(ia) cannot be invoked and if there was any shortfall due to any different of opinion, the assessee could be declared as an assessee in default but no disallowance to be made invoking the provisions of section 40(a)(ia). The Hon’ble Calcutta High Court dismissed the appeal filed by the revenue against the findings of the Tribunal holding no substantial question of law is involved in this case. 19. The Hon’ble Supreme Court in the case of CIT vs. M/s Calcutta Export Company (supra) has held that the amendment made to section 40(a)(ia) by the Finance Act 2010 would apply retrospectively. In the said case, the issue before the Hon’ble Supreme Court was that whether the amendment made by the Finance Act, 2010 in Section 40(a)(ia) of the IT Act is retrospective in nature to apply to the present facts and circumstances of the case. The Hon’ble Supreme Court decided this issue in affirmative. The relevant portion of the judgment reads as below:-
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3) “Hence, in light of the forgoing discussion and the binding effect of the judgment given in Allied Moters (supra), we are of the view that the amended provision of Sec 40(a)(ia) of the IT Act should be interpreted liberally and equitable and applies retrospectively from the date when Section 40(a)(ia) was inserted i.e., with effect from the Assessment Year 2005-2006 so that an assessee should not suffer unintended and deleterious consequences beyond what the object and purpose of the provision mandates. As the developments with regard to the Section recorded above shows that the amendment was curative in nature, it should be given retrospective operation as if the amended provision existed even at the time of its insertion. Since the assessee has filed its returns on 01.08.2005 i.e., in accordance with the due date under the provisions of 139 IT Act, hence, is allowed to claim the benefit of the amendment made by Finance Act, 2010 to the provisions of Section 40(a)(ia) of the IT Act.” 20. As pointed out by the Ld. counsel for the assessee, in the present case, the assessee deposited the surcharge component in dispute in the month of October 2006 while the due date for filing of return of income was 30th November 2006 as per the CBDT order dated 24.10.2006. Since, the assessee had deposited the TDS before the date of filing of return as per the provisions of section 139 (1) of the Act and since the Hon’ble Supreme Court has held that the amendment made to section 40(a)(ia) would apply retrospectively, we find merit in the contention of the Ld. counsel for the assessee. Hence, in view of the aforesaid facts and the ratio of law laid down by the Hon’ble Supreme Court in the cases discussed above, we allow this ground of appeal and set aside the findings of the Ld. CIT (A). Accordingly, we direct the AO to delete the addition made u/s 40(a)(ia) of the Act.
Vide Ground No. 4 and 6 the assessee has challenged the action of the Ld. CIT (A) in directing the assessee to file rectification application u/s 154 of the Act in respect of plant shifting expenses and deduction claimed in respect
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of professional and consultancy expenses. The Ld. counsel submitted before us that the assessee had claimed plant shifting expenses amounting to Rs. 30,71,919/-, Rs. 5,16,613 and Rs. 49,31,086/- for the financial years relevant to the assessment years 2002-03, 2003-04 and 2004-05 respectively. During the course of assessment proceedings, the AO allowed only 1/5th of the same for the said years with the direction that the balance of 4/5th would be allowed over the next four assessment years. The assessee filed a revised computation of total income claiming the deduction of 1/5th being Rs. 6,14,384/-, Rs. 1,03,322/- Rs. 9,86,297/- as relatable to such expenses incurred by the assessment during the aforesaid years. Similarly, the assessee claimed professional and consultancy expenses amounting to Rs. 2,47,295/-. During the course of assessment proceedings, the AO only allowed 1/5th of the amount claimed holding that the balance is allowable over the next four assessment years. The assessee filed revised computation of income claiming 1/5th deduction in respect of both the claims, however, AO rejected the claim without giving any reason. In the first appeal, the Ld. CIT (A) dismissed this ground holding that since the AO has not denied the said claims in the assessment order, the assessee is at liberty to file application u/s 154 of the Act for rectification of mistake apparent. The Ld. counsel further submitted that since the AO had rejected the aforesaid claims of the assessee without discussing the issues in the assessment order, the Ld. CIT (A) ought to have directed the AO to allow the claims of the assessee.
On the other hand, the Ld. DR supporting the order passed by the Ld. CIT (A) submitted that there is no infirmity in the order of the Ld. CIT (A) as the Ld. CIT (A) has rightly held that the assessee is free to file rectification applications u/s 154 of the Act before the AO in respect of plant shifting expenses and professional and consultancy expenses claimed by the assessee.
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We have gone through the order passed by the authorities below. The contention of the assessee is that the Ld. CIT (A) has wrongly held that since these issues fall within the ambit of mistake apparent from record, these grounds of appeal are not maintainable and further held that the assessee is free to file applications for rectification of mistake apparent u/s 154 of the Act. We find merit in the submission of the Ld. counsel. In our considered view, since the AO had not allowed the legitimate claims of the assessee, the Ld. CIT(A) ought to have decide the issues raised by the assessee on merits instead of holding that the assessee is free to file applications for rectification of the aforesaid claims made by the AO. Hence, we are of the considered view that these issues require fresh consideration on merits by the first appellate authority. We, therefore, set aside these issues to the file of the Ld. CIT(A) to decide the same afresh on merits after affording a reasonable opportunity of being heard to the assessee. Accordingly, we allow ground No 4 and 6 of the appeal of the assessee for statistical purposes.
Vide Ground No. 5 and 7 the assessee has challenged the action of the Ld. CIT (A) in not adjudicating the issue regarding expenses incurred on account of amalgamation claim by the assessee and depreciation on computer expenses claimed by the assessee holding that since there is nothing on record that the claim of the assessee has been rejected, these issues fall within the ambit of mistake apparent from record and therefore not maintainable.
We have heard the rival contentions of the parties and perused the material on record. The contention of the assessee is that the Ld. CIT (A) has wrongly held that since the issues fall within the ambit of mistake apparent from record, these grounds of appeal are not maintainable and further held that the assessee is free to file application for rectification of mistake apparent u/s 154 of the Act. We find merit in the submission of the Ld. counsel. In our considered view, since the AO had not allowed the legitimate claims of the
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assessee, the Ld. CIT(A) ought to have decide these issues on merits instead of holding that the assessee is free to file applications for rectification of the aforesaid claims made by the AO. Hence, we are of the considered view that these issues require fresh consideration on merits by the Ld. CIT(A). We, therefore, set aside these issues to the file of the Ld. CIT(A) to decide the same afresh on merits after affording a reasonable opportunity of being heard to the assessee. Accordingly, we allow ground No 5 and 7 of the appeal of the assessee for statistical purposes.
Vide Ground No. 8(a) &(b), the assessee has challenged the action of the Ld.CIT (A) in upholding the interest levied u/s 234B of the Act amounting to Rs. 4,28,794/-. The appellant had paid its tax for the assessment year under consideration under MAT provisions. As per the return of income filed there was no self assessment tax payable. Subsequently, the Finance Act, 2008 brought about retrospective amendment to the provisions of section 115JB, wherein the amount representing the deferred tax liability was required to be added back while computing the book profits. The said amendment was incorporated retrospectively w.e.f. AY 2001-02. During the appellate proceedings, the assessee filed an additional ground which is reproduced as under:-
“The appellant submits that the Assessing Officer erred in levying interest u/s 234B amounting to Rs. 4,28,794/-. The appellant submits that as per its return of income filed, there was no self assessment tax liability and consequently there was no liability to pay interest u/s 234B. While completing the assessment, deferred tax has been added in computing the book profit for computing the tax liability u/s 115JB on account of retrospective amendment of section 115JB and in such a case interest u/s 234B ought not to have been levied. This being a legal ground has been for adjudication.”
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The Ld. CIT (a) after hearing the assessee rejected the contention of the assessee and confirmed the action of the AO holding that the Assessing Officer has no option but to charge interest u/s 234B as per the provisions of the Act applicable at the time of assessment and accordingly the AO charged the interest.
Before us, the Ld. counsel submitted that this issue is covered in favour of the assessee by the judgment of the Hon’ble Bombay High Court in the case of CIT vs. JSW Energy Ltd. 279 ITR (Bom), in which it has been held that the assessee cannot be called upon the pay interest u/s 234B in the light of the explanation brought in which retrospective effect by the Finance Act, 2008.
On the other hand, the Ld. DR supporting the order passed by the Ld. CIT (A) submitted that since the AO had levied interest u/s 234B of the Act in accordance with the provisions of law, the Ld. CIT (A) has rightly upheld the action of the AO.
We have perused the material on record the case law relied upon by the Ld. counsel for the assessee in the light of the rival submissions of the parties. As pointed out by the Ld. counsel, Explanation to section 115JB was brought on the statute by the Finance Act, 2008 with retrospective from 01.04.2001. In the case of the CIT vs. JSW Energy Ltd. (supra), the issue before the Hon’ble Court was whether on the facts and circumstances of the case and in law, the Tribunal is right in law to hold that no interest u/s 234B can be levied consequent to inclusion of various items while computing the book profit as per the Explanation to section 115JB which was brought on the statute by the Finance Act, 2008 with retrospective effect from 01.04.2001. The Hon’ble High Court decided the said issue in affirmative. The findings of the Hon’ble High Courts read as under:-
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“In the present case, what the assessee has pointed out is that some of the amounts included in the book profits as per Explanation 1(h) to section 115JB were brought in by the Finance Act, 2008, with retrospective effect from April 1, 2001. The assessee cannot be held to be liable for failing to make a provision for payment of advance tax which was not possible on the last date as per the law then prevailing. Thus, clause (h), which is reproduced above , having been brought in with retrospective effect but by the Finance Act, 2008, the advance tax computation by the assessee for the year 2006-07 cannot be faulted and it cannot be said that the assessee is in default and, therefore, there is any liability to pay interest in terms of section 234B of the Income Tax Act, 1961. 18. In the case of Star India Pvt. Ltd. v. CCE [2006] 280 ITR 321 (SC) the Hon’ble Supreme Court held that the service of “broadcasting” was made a taxable service with effect from July, 16, 2001, by the Finance Act, 2001. The appellant disputed its liability to make any payment for service tax on the ground that it did not broadcast. The Commissioner, however, held against the appellant. The matter was carried before the Commissioner of Income Tax (Appeals) and during pendency of the appeal the Finance Act, 2001, was amended by the Finance Act, 2002. The effect of the amendment, inter alia was to make an agent, such as the appellant, before the Supreme Court, liable to pay service tax as broadcaster. 19. The Supreme Court noted that the appellant’s appeal pending before the Commissioner was rejected by him on the basis of this amendment. The Tribunal also maintained this order and that part of the order passed by the Commissioner was not challenged in appeal. However, the appellant was aggrieved by the fact that the Tribunal held it liable to pay interest on the amount which it was required to pay by reason of the 2002 amendment. The assessee contended that once the amendment was brought in, pending the appeal, there was no question of applying section 234B or any analogous provision
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and payment of interest. It is in that regard that the hon’ble Supreme Court held as under (page 324 of 280 ITR): “In any event, it is clear from the language of the validation clause, as quoted by us earlier, that the liability was extended not by way of clarification but way of amendment to the Finance Act with retrospective effect. It is well established that while it is permissible for the Legislature to retrospectively legislate, such, retrospectively is normally not permissible to create an office retrospectively. There was clearly judgments, decrees or orders of courts and tribunals or other authorities, which required to be neutralized by the validation clause. We can only assume that the judgments, decree or orders, etc. had in fact, held that persons situate like the appellants were not liable as service providers. This is also clear from the Explanation to the valuation section which says that no act or acts on the part of any person shall be punishable as an offence which would not have been so punishable if the section had not come into force. The liability to pay interest would only arise on default and is really in the nature of a quasi-punishment. Such liability, although created retrospectively, could not entail the punishment of payment of interest with retrospective effect.” The Supreme Court held that the liability to pay interest would only arise on default and is really in the nature of a quasi- punishment. The liability to tax although credited retrospectively could not entail the punishment of payment of interest with retrospective effect. It is this principle which has been laid down which is followed by the Calcutta High Court. It is that principle relied upon by the Calcutta High Court has been applied by the Tribunal to the facts and circumstances of the present case. We do not think that the assessee before us can be called upon to pay interest in terms of section 234B, once the Explanation was introduced for brought in with retrospective effect but by the Finance Act, 2008. Then, there was no liability to pay interest in terms of this provision. That was because the assessee cannot be termed as defaulter in
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payment of advance tax. The advance tax computation on the basis of the unamended provision, therefore, could not have been entertained.” 31. This issue is covered in favour of the assessee by the ratio laid down by the Hon’ble Bombay High Court in the case of CIT vs. JSW Energy Ltd. (supra). No contrary decision was brought to our notice by the revenue. Hence, in our considered view, the findings of the Ld.CIT (A) are not in accordance with the law laid down by the Hon’ble High Court. Hence, respectfully following the judgment of the Hon’ble High Court, we allow this ground of appeal of the assessee and direct the AO to delete the interest levied u/s 234B of the Act.
ITA No. 8048/MUM/2010 (Assessment Year: 2007-08)
The facts of the present case are similar to the facts of the assessee’s case for the assessment year 2006-07 discussed above, except the amount of claims made by the assessee. Hence, we do not deem it necessary to repeat the facts in this case. 2. The assessee has challenged the impugned order passed by the Ld. CIT (A) pertaining to the assessment year 2007-08 on the following effective grounds:-. 1. The learned Commissioner of Income-tax (Appeals) erred in upholding the action ,- of the learned Assistant Commissioner of Income-tax (hereinafter referred to as 'the Assessing Officer') in disallowing a sum of Rs. 2,18,670/- out of total lease rental expense of Rs.6,55,5 12/- incurred by the appellant.
(a) The learned Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in restricting the claim of the appellant for depreciation on UPS and Invertor @ 15% as against 60%, by treating the same as plant & machinery and disallowed a sum of Rs. 1,47,405/.
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(b) Without prejudice to what is stated above, the learned Commissioner of Income Tax (Appeals) erred in upholding the action of the Assessing Officer in disallowing a sum of Rs. 1,47,405/-, being 45% of additions to computers in nature of UPS, Printers & Card scanners etc. amounting to Rs. 3,27,567/- as against a sum of Rs. 91,005/-, being excess of depreciation claimed on additions to computers in nature of UPS, Printers & Card scanners etc. (c) Without prejudice to what is stated above, the appellant submits that UPS are in the nature of energy saving device and as such entitled to depreciation @ 80%. 3. The appellant submits that the Assessing Officer be directed:- i. to delete the disallowance of Rs. 2,18,670/- out of lease rental charges; ii. (a) to allow depreciation @ 60% on UPS purchased during the previous year amounting to Rs.3,27,567/-; (b) Without prejudice to what is stated above, to restrict the disallowance to Rs. 91,005/- being excess of depreciation claimed @ 60% on additions to ''computers in nature of UPS, Printers & Card scanners etc.; (c) Without prejudice to what is stated above, to hold that the UPS are in the nature of energy saving device and as such entitled to depreciation @ 80%.” 4. Each of the above grounds of appeals are independent and without prejudice to each other.
Ground No. 1 of this appeal is identical to the Ground No. 1 of the appeal of the assessee pertaining to the assessment year 2006-07. We have allowed this ground of appeal of the assessee in the assessee’s own case for the AY 2006-07. The revenue has not pointed out any material change of facts in the present case. Hence, consistent with our findings in the assessee’s own case for the assessment year 2006-07, we allow this ground of appeal of the assessee
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for the same reasons and direct the AO to delete the addition made on account of disallowance of lease rentals. 4. Ground No. 2 (a) and (b) of this appeal are identical to the ground No. 2 of the assessee’s appeal for the assessment year 2006-07 discussed above. We have allowed this ground of appeal in the assessee’s own case for the assessment year 2006-07. The revenue has not pointed out any material change in the facts of the present case. Hence, consistent with our findings, we allow this ground of appeal of the assessee for the same reasons. As submitted by the Ld. counsel, the assessee does not want to press Ground No. 2 (c) of the appeal. Hence, we dismiss Ground No. 2(c) of the appeal as not pressed. 5. Ground No. 3 and 4 of this appeal are of general nature. Hence, the same do not require separate adjudication.
ITA No. 7682/MUM/2011 (Assessment Year: 2008-09) The facts of the present case are similar to the facts of the assessee’s case for the assessment year 2006-07 and 2007-08 discussed above, except the amount of claims made by the assessee. Hence, we do not deem it necessary to repeat the facts in this case. 2. The assessee has challenged the impugned order passed by the Ld. CIT(A) on the following effective grounds:-.
The learned Commissioner of Income Tax (Appeals) erred in upholding the action of the learned Assistant Commissioner of Income Tax (hereinafter referred to as ‘the Assessing Officer’) in disallowing a sum of Rs. 46,115/- out of total lease rental expense of Rs. 2,84,782/- incurred by the appellant. 2. (a) The learned Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in restricting the claim of the appellant for depreciation on UPS and Invertor @ 15% as against 60%, by treating the
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same as plant & machinery and disallowed a sum of Rs. 1,50,668/. (b) Without prejudice to what is stated above, the appellant submits that UPS are in the nature of energy saving device and as such entitled to depreciation @ 80%. 3. The appellant submits that the Assessing Officer be directed:- i. to delete the disallowance of Rs. 46,115/- out of lease rental charges; ji. (a) to allow depreciation @ 60% on UPS purchased during the previous year amounting to Rs.33,98,370/-; (b) Without prejudice to what is stated above, to hold that the UPS are in the nature of energy saving device and as such entitled to depreciation @ 80% . 4. Each of the above ground of appeals are independent and without prejudice to each other.
Ground No. 1 of this appeal is identical to the Ground No. 1 of the appeal of the assessee pertaining to the assessment year 2006-07 and ground No 1 of the assessee’s appeal for the assessment year 2007-08. We have allowed this ground of appeal of the assessee in the assessee’s own case for the AY 2006-07 and 2007-08. The revenue has not pointed out any material change of facts in the present case. Hence, consistent with our findings in the assessee’s own case for the assessment year 2006-07 and 2007-08, we allow this ground of appeal of the assessee for the same reasons and direct the AO to delete the addition made on account of disallowance of lease rentals.
Ground No. 2 (a) and (b) of this appeal are identical to the ground No. 2 of the assessee’s appeal for the assessment year 2006-07 and ground No. 2 (a) and (b) of the assessee’s appeal for the assessment year 2007-08 discussed above. We have allowed these grounds of appeal in the assessee’s own case for the assessment year 2006-07 and 2007-08. The revenue has not pointed out
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any material change in the facts of the present case. Hence, consistent with our findings, we allow this ground of appeal of the assessee for the same reasons. 5. Ground No. 3, 4 and 5 of this appeal are of general nature. Hence, the same do not require separate adjudication. In the result, appeals filed by the assessee for assessment years 2006-07, 2007-08 and 2008-09 are partly allowed. Order pronounced in the open court on 29th Aug., 2019.
Sd/- Sd/- (G.S. PANNU) (RAM LAL NEGI) VICE PRESIDENT JUDICIAL MEMBER म ुंबई Mumbai; दिन ुंक Dated: 29/08/2019 Alindra, PS
आदेश प्रतितिति अग्रेतिि/Copy of the Order forwarded to : अपीलार्थी / The Appellant 1. 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. विभागीय प्रविविवि, आयकर अपीलीय अविकरण, मुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file.
आदेशानुसार/ BY ORDER, सत्यावपि प्रवि //True Copy// उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीिीय अतिकरण, मुंबई / ITAT, Mumbai