RANJITPURA INFRASTRUCTURE PVT. LTD.,,BANGALORE vs. DCIT, BANGALORE

Per Bench : These are cross appeals filed by the assessee and Revenue directed against the common order of the Commissioner of Income Tax

2 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 (Appeals)-11, Bangalore dt.22.5.2015 for Assessment Years 2010-11 & 2011-12. The grounds of appeal raised in all these appeals are mostly similar and therefore these appeals were heard together and are disposed off by way of this consolidated order for the sake of convenience. 2. Briefly stated, the facts of the case are as under :-

2.1 The assessee company filed its return of income for Assessment

Year 2010-11 on 15.12.2010 declaring loss of Rs.7,51,77,878. The return

was processed under Section 143(1) of the Income Tax Act, 1961 (in

short 'the Act'). There was a search under Section 132 of the Act

conducted on 19.7.2010 in the case of Sri Dinesh Kumar Singhi, M/s.

Bharat Mines & Minerals, M/s. BMM Ispat Ltd., etc. which are connected

parties of the assessee. In the course of search, it was found that in the

year under consideration the assessee has received share application

money of Rs.2.50 Crores from M/s. BPO Finance and Investments P;. Ltd.

and Rs.6.15 Crores from M/s. Panchmukhi Properties Pvt. Ltd. On the

basis of information received of the above concerns in the course of

search the Assessing Officer was of the view that the aforesaid share

application money was routed through shell companies of the promoters

and the share application money was from unaccounted sources. After

3 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 initiating proceedings under Section 147 of the Act by recording reasons

in this regard, the Assessing Officer issued notice under Section 148 of

the Act to the assessee on 22.11.2012. In response thereto, the assessee

filed letter dt.19.12.2012 submitting that the return of income for

Assessment Year 2010-11 filed on 15.10.2010 be treated as filed in

response to notice under Section 148 of the Act. On requests by the

assessee vide letters dt.19.12.2012 and 8.1.2013, the Assessing Officer

furnished the reasons recorded for initiation of proceedings under

Section 147 of the Act. The assessee filed its objections thereto vide

letter dt.12.8.2013 and the said objections were disposed off by the

Assessing Officer vide letter dt.26.2.2014. The assessment was

concluded under Section 143(3) r.w.s. 147 of the Act vide order

dt.27.3.2014, wherein the assessee's income was determined at

Rs.5,14,68,859 in view of (i) protective addition of Rs.8,65,00,000 as

unexplained cash credits under Section 68 of the Act and (ii)

disallowance of depreciation on helicopter amounting to Rs.4,01,46,737.

On appeal, the learned CIT (Appeals) vide the impugned order

dt.22.5.2015 partly allowed the assessee's appeal by deleting the

protective addition of Rs.8,65,00,000 made as unexplained cash credits,

4 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 under Section 68 of the Act, but upheld the Assessing Officer’s action

(i) on the issue of validity of proceedings under Section 147 of the Act

and (ii) disallowance of depreciation on helicopter of Rs.4,01,46,437.

2.2 Assessment Year 2011-12.

For this Assessment Year 2011-12, the assessee filed its return of

income on 29.9.2011 declaring loss of Rs.4,69,87,993 and the return was

processed under Section 143(1) of the Act. A search under Section 132

of the Act was conducted on 19.7.2010 in the case of Sri Dinesh Kumar

Singhi, M/s. Bharat Mines and Minerals, M/s. BMM Ispat Ltd., which

were connected parties of the assessee. In the course of search it was

found that in this year under consideration, the assessee had received

share application money of Rs.3.00 Crores from M/s. Panchmukhi

Properties P. Ltd. On the basis of information received in the course of

search in the above concerns, the Assessing Officer was of the view that

the aforesaid share application money was routed through shell

companies of the promoters and the share application money was from

unaccounted sources. After initiating proceedings under Section 147 of

the Act on 22.11.2012. In response thereto, the assessee filed letter

dt.19.12.2012 submitting that the return of income for Assessment Year

5 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 2011-12 filed on 29.9.2011 be treated as filed in response to notice

under Section 148 of the Act. On requests by the assessee vide letters

dt.19.12.2012, 8.1.2013 and 16.8.2013, the Assessing Officer furnished

the reasons recorded for initiation of proceedings under Section 147 of

the Act. The assessee filed its objections thereto vide letter dt.5.12.2013

and the said objections were disposed off by the Assessing Officer vide

order dt.26.2.2014. The assessment was completed under Section

143(3) r.w.s. 147 of the Act vide order dt.27.3.2014, wherein the

assessee's income was determined at Rs.10,78,039 in view of

(i) protective addition of Rs.3,00,00,000 as unexplained cash credit under

Section 68 of the Act and (ii) disallowance of depreciation on helicopter

amounting to Rs.1,80,66,032. On appeal, the learned CIT (Appeals) vide

the impugned order dt.22.5.2015 partly allowed the assessee's appeal

by deleting the protective addition of Rs.3,00,00,000 made as

unexplained cash credits under Section 68 of the Act, but upheld the

Assessing Officer’s action (i) on the issue of validity of proceedings under

Section 147 of the Act and (ii) disallowance of depreciation on helicopter

amounting to Rs.1,80,66,032.

6 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 3. Revenues appeals in ITA Nos.1110 & 1111/Bang/2015

for Assessment Years 2010-11 & 2011-12.

3.1 Aggrieved by the common orders of the CIT (Appeals) – 11,

Bangalore dt.22.5.2015 for both Assessment Years 2010-11 and 2011-12,

Revenue has filed these appeals challenging the action of the learned CIT

(Appeals) in deleting the aforesaid protective additions of unexplained

cash credits under Section 68 of the Act amounting to Rs.8.65 Crores in

Assessment Year 2010-11 and Rs.3 Crores in Assessment Year 2011-12.

The identical grounds raised by Revenue in these appeals are as under :

“ (i) The learned CIT (Appeals) has erred in deleting the addition made protectively towards unexplained ;cash credits / unaccounted payments. (ii) For the above and other grounds that may be agitated during the course of appeal, the order of the learned CIT (Appeals) may be set aside and that of the Assessing Officer be restored.” 3.2 The only issue raised by Revenue in these appeals challenges the action of the ld CIT(A) in deleting the addition of Rs.8.65 Crores for Assessment Year 2010-11 and Rs.3 Crores for Assessment Year 2011-12 protectively towards unexplained cash credits u/s 68 of the Act. The ld standing counsel pleaded for confirmation of the aforesaid addition made by the AO and filed written submissions in support of Revenue’s contentions which are extracted hereunder:-

7 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 1. “ Search under section 132 of the Act was conducted in the case of Shri.Dinesh Kumar Singhi, Bharat Mines and Minerals and BMM ISPAT Ltd on 19/7/2010. The assessee is one of the companies of the above group.

8 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 4. The assessee relied on the submissions made in the case of Dinesh Kumar Singhi for the Assessment Year 2010–11. The Assessing Officer also adopted the reasons assigned in the case of Sri Dinesh Kumar Singhi for the Assessment Year 2010–11. The detailed submissions made in the case of Sri Dinesh Kumar Singhi for the Assessment Year 2010-11 is adopted and the same is extracted below for convenience. “UNEXPLAINED INVESTMENT IN SHARES APPLICATION MONEY” i. During search it was found that company by name M/s.BPO Finance and Investments Private Limited (BPO), Kolkatta has issued and subscribed shares of Rs 10 per share aggregating to Rs.1,99,98,700/–. Further it was found that during the year the assessee and is wife have acquired 100% of the above issued and subscribed share capital. The shares were purchased from various parties by the assessee as listed in page 2 to 4 of the assessment order. The assessee in total has acquired 60% of the total shares issued and subscribed. In view of the acquisition of 100% of the issued and subscribed share capital of the above company, took over reserves and surplus of the above company at Rs.125,40,64,500/– as on 31/3/2010.

ii. Similarly another company by name M/s.Panchamukhi Properties Private Limited (PPPL) Kolkatta issued and subscribed shares of Rs10 per share aggregating to Rs.2,22,91,950/–. The assessee purchased 60% of the shares and his wife purchased remaining 40% of the issued and subscribed shares. The details are tabulated in page 5 and 6 of the assessment order. In view of the acquisition of 100% of the issued and

9 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 subscribed share capital of the above company, took over reserves and surplus of the above company at Rs .101,39,38,050/– as on 31/3/2010. iii. The close relatives of the assessee acquired 50 shares out of 22,29,195 shares. iv. The assessee and his wife by acquiring hundred percent of shares by paying a sum of Rs.1,99,98,700/– acquired control over an amount of Rs.125,40,64,500/– in respect of M/s.BPO Finance and Investments Private Limited. Similarly by paying a sum of Rs.2,22,91,450/– acquired control over an amount of Rs.101,39,38,050/–. v. In view of the disproportionate cost of purchase, enquiries were conducted regarding genuineness of the above transactions. During the course of search proceedings it was found that four companies owned and controlled by the assessee and his wife received share application money from M/s.BPO Finance and Investments Private Limited and M/s.Panchamukhi Properties Private Limited during the financial years 2009–10 and 2010–11 totalling to Rs 142.45 crores.

vi. During the search proceedings the assessee was requested to give details of the companies which provided the share application money and the directors of the companies. The assessee failed to provide details of the companies and the directors. Summons issued to the assessee did not yield any result. Despite the assessee and his wife being 100% shareholders of the above two companies, the same was not revealed at any point of investigation. The post-search investigation revealed 100% shares being owned by the assessee and his wife.

10 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 vii. The enquiries conducted by the revenue regarding genuineness of the about two companies has resulted as under: – a) companies are not located in the address given b) Companies did not exist at the registered address for mission to ROC. c) No directors of the companies were available at the given address. d) No books of accounts found at the address. e) No director of the companies appeared during course of survey proceedings. f) From the balance sheets obtained from the ROC about two companies revealed that companies do not have any fixed assets, no business activities for number of years and are involved only in fund transfer. viii. On the basis of the above material the companies BPO and the PPPL were considered as shell entities with no independent business. The above companies were merely used as conduits to plug back unaccounted funds into the four group companies named above. The result of enquiries demonstrated BPO and PPPL are not genuine investors and is modus of bringing in share application money is only a smoke screen. ix. Though assessee did not cooperate in providing details of the directors of the above said to companies, the Department obtained the same from the ROC and it was found that Ms.Soma Dutta, Mr.Ranjeet Singh Kothari and Nemichand Jain are directors of the PPPL and Mr.Radhakant Tiwari and Ms.Soma Dutt are directors of BPO. The assessee and his wife were also directors in both the companies during the Assessment Year 2010– 11. The enquiries revealed that some of the directors or employees of Mr.Sagarmal Nahata was arranging funds at Kolkatta. One of the

11 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 director was found to be watchmen. The directors were not residing at the addresses provided. The signed blank cheques of the companies were found in the possession ofMr.Sagarmal Nahata. x. In view of the disproportionate investment of acquiring to companies worth Rs 226 crores by paying a sum of Rs 4.02 crores the circumstantial evidence was considered by the Assessing Officer. At the time of search a document containing notings regarding payments made to various parties including Kolkatta a/c was seized from the residence of the assessee. The details reflected at page 18 of the assessment order. In total sum of Rs.5,02,00,000/– has been shifted from Karnataka to some accounts in Kolkatta and the assessee failed to offer an explanation about the nature and source of the entries. Ledger accounts of the share application money received from BPO and PPPL in the books of M/s.BMM Ispat were obtained and examined. xi. On examination of the seized material and the Ledger accounts of BPO and PPPL the Assessing Officer arrived at a conclusion that the assessee has shifted money to the about two companies at Kolkatta to facilitate the investment of the Rs 5 crores into M/s.BMM ISPAT Ltd through the above shell companies. Further examination of the bank account of BMM Ispat Ltd revealed that Rs.5 crores has been received by the assessee and that establishes clear link to the content’s recorded in the seized page. The cash of Rs.5 crores is sent to Kolkatta along with commission of Rs.2 lakhs during 8th to 12th April 2010 and the amounts received by way of cheque in the bank accounts of BMM Ispat Ltd on 13/4/2010. This clearly indicates that the assessee own cash has been routed back to family

12 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 owned four companies through BPO and PPP L and other associate companies in the form of share application money. xii. The notices issued to BPO and PPPL and to the parties who have sold shares to the assessee and his wife were returned by postal authorities unserved. The above aspect would clearly demonstrate the dubious nature of the purchase of shares by the assessee and his wife. The assessee was issued show cause notice proposing to treat share application money paid into four companies belonging to the assessee’s group to be treated as money introduced by the assessee. The assessee merely submitted that the entire transaction is taken place through cheque and at arms length price.

xiii. The Assessing Officer considering the entire transaction treated 60% of share application money in BPO and PPPL as unaccounted investment by the assessee under section 69 of the Act. xiv. The Assessing Officer was correct in looking at the real transaction with respect to the share application money by lifting the veil and creating nexus with the investment to the payments made by the assessee as found and reflected in the seized documents. The failure on the part of the assessee to demonstrate the issues raised by the Assessing Officer in the course of post-search investigation or during the assessment proceedings would further justify the devise adopted by the assessee for investing his own unaccounted money into the subsidiaries.

13 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 A. REPLY TO ASSESSEE CONTENTIONS i. The contention of the assessee that the existence of BPO and PPPL cannot be doubted in view of the long existence before the assessee acquired the shares and the bank accounts maintained by the said companies. The failure on the part of the assessee being holder of 60% of the shares and 40% of shares by his wife to identify the genuineness of the company and also the directors of the company would demonstrate the object of the said two companies owned by the assessee and his wife. The Hon’ble Supreme Court in the case of Vodafone has clearly held that the companies without any business being carried out, being used as a conduit for device for avoidance of tax to be treated as shell companies and direct nexus to be created.

ii. In view of the seized material reflecting payments towards Kolkatta account and the same amounts being reflected in BMM Ispat private limited and the same amounts being reflected as investment by the BPO and PPPL in the group companies of the assessee would establish the nexus beyond doubt and the same has been rightly taxed as an investment of the assessee. iii. As admitted by the assessee at page 16 of the written submissions, share application money has been considered in the hands of the shareholders, the assessee and his wife being 100% shareholders as unexplained investment.”

14 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 The above addition has been made on protective basis in the hands of the assessee and on substantive basis in the case of Shri Dinesh Kumar Singhi and Mrs Snehalatha Singhi for the Assessment Year 2010 – 11. The Appellate Commissioner in view of the conforming of the same in the hands of Shri Dinesh Kumar Singhi and Mrs Snehalatha Singhi deleted the protective addition in the hands of the assessee company.

It is submitted that the above controversy is involved before this Hon’ble Tribunal in the batch of appeals which have been heard along with this appeal. Subject to result of appeal in the case of Sri Dinesh Kumar Singhi and Mrs Snehalatha Singhi for the Assessment Year 2010–11 pending before this Hon’ble Tribunal, it is prayed to confirm the addition.”

3.3 Per contra, the ld AR for the assessee submitted that the additions in this case should not be made/upheld either on substantive or protective basis and has placed reliance on submissions and arguments put forth in the case of Singhi Holdings Pvt. Ltd., (ITA No.1112/Bang/2015). It was contended that it has been held by the Hon’ble Apex Court in the case of Lovely Exports (216 CTR (SC) 195) and a host of other decisions that no undisclosed income can be assessed in the hands of the recipient of the share application money.

3.4.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncements cited. From the appraisal of the records before us, it emerges that the assessee received share application money of Rs.2.50 Crores from the company M/s BPO Finance & Investment Pvt. Ltd.,

15 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 Kolkata in Assessment Year 2010-11 and Rs.6.15 Crores in Assessment Year 2010-11 and Rs.3 Crores in Assessment Year 2011-12 from the company from M/s Panchmukhi Properties Pvt. Ltd., Kolkata, routed through normal banking channels. Investigations by the Departments authorities below reveal that Shri Dinesh Kumar Singhi and Snehalatha Singhi are owners and 100% share holders of the aforesaid two companies who introduced the share application money in the assessee company and it was in this context that the investments in the assessee company and its 4 group companies i.e M/s BMM Ltd., M/s BMM Cements Ltd., M/s Ranjitpura Infrastructure Pvt. Ltd., and M/s Singhi Holdings Pvt. Ltd., was brought to tax in the hands of Smt. Snehalatha Singhi and Shri Dinesh Kumar Singhi in the ratio of their share holding in the two aforesaid companies M/s BPO Finance & Investments Pvt. Ltd., and M/s Panchmukhi Properties Pvt. Ltd., on substantive basis u/s 69 of the Act. It is in this factual matrix of the case that the ld CIT(A) deleted the protective additions made u/s. 68 in the case on hand.

3.4.2 With regard to the issue of share application money while dismissing the SLP filed by the Revenue, the Hon’ble Apex Court in the case of CIT Vs. Lovely Exports Pvt. Ltd., (Supra) has observed that:-

“Can the amount of share application money be regarded as undisclosed income u/s 68 of the IT Act, 1961? We find no merit in the Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is

16 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 free to proceed to re-open their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment.”

3.4.3 The Hon’ble Karnataka High Court in the case of CIT & Another Vs. Arunananda Textiles Pvt. Ltd., (33 ITR 116) held as under at paras 5 and 6 of its order:-

“5. The short question that arises for our consideration in this appeal is

"If the company has received share amount from the intending shareholders, is it required for the respondent- assessee to identify and establish the creditworthiness of the depositors. The question raised in this appeal is squarely covered by several judgments of the Supreme Court and also the judgment of this court passed in CIT v. ASK Brothers Ltd. [2011] 333 ITR 111 (Karn) wherein this court following the judgments of the Supreme Court in the case of CIT v. Lovely Exports P. Ltd. reported in [2008] 216 CTR (SC) 195; [2009] 319 ITR (St.) 5 (SC) and also in the case of CIT v. Steller Investment Ltd. [2001] 251 ITR 263 (SC) has ruled that it is not for the assessee to place material before the Assessing Officer in regard to the creditworthiness of the shareholders. If the company has given the addresses of the shareholders and their identity is not in dispute, whether they were capable of investing, the Assessing Officer shall investigate. It is not for the assessee -company to establish but it is for the Department to enquire with the investors about their capacity to invest the amount in the shares. Therefore, we are of the view that the substantial questions of law framed in this appeal are to be answered against the Revenue and in favour of the assessee. Accordingly this appeal is dismissed.”

4.3.4 Respectfully following the decision of the Hon’ble Apex Court in the case of Lovely Exports Pvt. Ltd., (Supra) which was followed by the jurisdictional High Court in the case of CIT Vs. Arunananda Textile Pvt.

17 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 Ltd., (Supra), the addition made by the AO in respect of share application money on protective basis as unexplained cash credits u/s 68 of the Act and deleted by the ld CIT(A) in the impugned order at para 8.7 thereof cannot be treated as unexplained cash credits in the hands of the assessee. Consequently, the grounds (i) and (ii) raised by Revenue are dismissed.

Assessee's appeals in ITA Nos.1104 & 1105/Bang/2015

for Assessment Years 2010-11 and 2011-12.

5.0 Aggrieved by the common order of the CIT (Appeals) – 11, Bangalore dt.22.5.2015 for Assessment Years 2010-11 and 2011-12, the assessee has filed these appeals before the Tribunal, wherein it has raised the following grounds :-

Asst. Year : 2010-11.

18 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 under law, thereby violating the principles of natural justice, hence the order requires to be cancelled.

19 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 12. The appellant denies the liabilities for interest u/s 234A and 234B of the Act. Further prays that the interest if any should be levied only on returned income.

In this year, the assessee has raised the following grounds :

20 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 5. That the notice u/s 148 and service thereof is bad in law and the reassessment requires to be cancelled.

21 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 14. For the above and other grounds and reasons which may be submitted during the course of hearing of the appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered.

6.1 In these grounds (Supra), the assessee challenges the validity of initiation of reassessment proceedings. According to the assessee the initiation of proceedings was based on mere surmise and suspicion as it had already disclosed the share application money in its books of accounts and there was no failure on the part of the assessee to disclose all material facts in this regard. It was merely a case of change of opinion by the AO. In support of its contentions, the assessee, inter alia, placed reliance on the decision of the co-ordinate bench of this Tribunal in the case of DHFL Vysya Housing Finance Ltd., in ITA No.1416/Bang/2010.

6.2 Per contra, the ld standing counsel vide written submission contended as under:-

“The asst. year involved in asst. year 2010-11. The return was accepted u/s 143(1) of the Act. Hence the contention of the assessee that there was no failure on the part of the assesee to disclose fully and truly all material facts, not being alleged, is incorrect and inapplicable. It is further submitted that the proviso to sec. 147 of the Act is also not applicable as the assessment is re-opened within four years. Further as the assessment was completed u/s 143(1) of the Act, change of opinion does not arise. As held by Supreme Court in the case of Rejesh Jhaveri Stockbrokers Ltd.”

22 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 Hence, the re-opening of assessment on the basis material found as course of search in the premises of the group companies is justified and is strictly in accordance with law.” 6.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. From the record before us it is seen that the AO acted on the basis of information pursuant to search operations that the assessee had received share application money of Rs.8.65 crores in Assessment Year 2010-11 and Rs.3.00 Crores in Assessment Year 2011-12 which was allegedly routed through shall companies from out of unaccounted sources, initiated proceedings u/s 147 of the Act for both the aforesaid assessment years. After recording reason leading to the formation of belief that income of the assessee had escaped assessment in respect of the above transactions, notice u/s 148 of the Act dated 22/11/2012 was issued to the assessee. In response thereto, the assessee vide letters dated 19/12/2012 stated that the return of income filed for asst. year 2010-11 on 15.10.2010 and on 29/9/2011 for asst. year 2011-12 be treated as filed in response to notice issued u/s 148 of the Act and sought the reasons recorded by the AO in this regard which were furnished. The objections filed by the assessee on 12/8/2013 and 5.12.2013 respectively, were disposed off by the AO vide letters dated 26/2/2014. Since, prior to the initiation of proceedings u/s 147 of the Act in the case on hand for the year under consideration, the return of income asst. years 2010-11 & 2011-12 were only processed u/s 143(1) of the Act, therefore, the assessee’s contention that there was no failure on the part of the assessee to disclose fully and truly all material facts

23 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 required would not hold good as no such view was taken and also since the proviso to sec 147 of the Act is not applicable; as the assessment was reopened within the period of 4 years. Further, since the returns of income were processed u/s 143(1) of the Act, it is not a case of change of opinion by the AO as held by the Hon’ble Apex Court in the case of Rajesh Jhavari Stockbrokers Ltd., (291 ITR 500) (SC). In our view, the AO followed the procedure laid down and prescribed under the Act while initiating proceedings u/s 147 of the Act for formation of belief, on the basis of material before him that any normal person would do in such circumstances to come to the reasonable belief that income of the assessee liable to tax had escaped assessment. In this view of the matter, we uphold the impugned orders of the ld CIT(A) on this issue and consequently dismiss the grounds 1 to 9 raised in the assessee's appeals in both A. Ys 2010-11 and 2011-12.

7.1 In these grounds (supra), the assessee challenges the action of the authorities below in restricting the depreciation on helicopters to 15% instead of 40% claimed by the assessee. In written submissions filed, the assessee submits as under :-

“ On the issue of addition made on depreciation of helicopter of Rs.4,01,46,737/- for AY 2010-11 and Rs.1,80,66,032/- for AY 2011-12 the assessee submits as under: The assessee company had claimed depreciation on helicopter at 40% as per Appendix I of the IT Rules. During the course of assessment proceedings the AO show caused as to why depreciation should be allowed at 40% instead of

24 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 15%. The assessee submits its replies/objections vide letter dt27.03.2014 (PB page 26). Rejecting the above contentions of the assessee, the assessing officer on unsustainable and untenable reasons has allowed depreciation on helicopter at rate of 15% instead of 40% as claimed by the assessee. The CIT-A has upheld the same. The issue is covered in favour of the assessee by the decision of Delhi ITAT in ACIT vs. A.R.Airways Pvt Ltd - 36 CCH 702 (CLPB page 556) and the assessee relies on the same. In view of this it is requested that the depreciation may be allowed as claimed by the assessee.” 7.2 Per contra, the ld. Standing Counsel for Revenue vide written submissions on this issue has contended as under :-

“ The assessee has claimed depreciation at the rate of 40% on helicopter. The assessee contended that helicopter and aeroplane fall under aircraft, depreciation at 40% applicable to aeroplane is justified. The Assessing Officer by considering the Appendix-I of IT rules at clause 3 (i) proceeded to hold that helicopter does not fit under the head aeroplane and disallowed the excess depreciation and restricted it to 15%. The Appellate Commissioner confirmed the finding of the Assessing Officer. REPLY TO ASSESSEE SUBMISSION The reliance on the judgement of the assessee on A.R. Airways Private Limited is incorrect and the same is not applicable. The issue of considering the helicopter as aeroplane was never the issue before the tribunal in the above referred judgement. As held by the Assessing Officer helicopter cannot be compared with aeroplane further differentiation explained by the Assessing Officer at para-5.3 at page 9 of the assessment order is relied on.”

7.3.1 We have heard the rival contentions, perused and carefully considered the material on record. The assessee, in the Assessment Years under consideration, has claimed depreciation on helicopter as prescribed for Aeroplanes – Aero Engines under Appendix I of the IT Rules, 1962 @ 40% and placing reliance on the definition of helicopter in the Oxford Dictionary which is “A type of an aircraft which denies both light and propulsion from

25 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 one or two sets of horizontally revolving overhead rotors. It is capable of moving vertically and horizontally, the direction of Motion being controlled by the pitch of rotor blades.” The Assessing Officer was of the view that even though helicopter was an aircraft like an aeroplane, depreciation @ 40% is to be allowed only for ‘Aeroplane – Aero engine’ as per Appendix I of the IT Rules, 1962 under the head III ‘Plant and Machinery’ at clause 3(i) and since helicopter was not specifically mentioned therein, allowed the assessee depreciation on helicopters @ 15% as allowable to Plant in general as defined in Sec.43(3) of the Act, where again we find that helicopter has not been specifically mentioned. 7.3.2 The Assessing Officer observed that even though helicopter is an aircraft; as it is not specifically mentioned in Appendix I of the Rules under the head III Plant and Machinery at clause 3 (1) thereof he denied the claim of the assessee for depreciation @ 40%. We also observe that helicopter is also not specifically mentioned / defined in Sec. 43(3) of the Act by virtue of which the Assessing Officer granted the assessee depreciation @ 15%. Helicopter, we find, has not been specifically referred to in the aforesaid section and no judicial pronouncements in this regard have been placed before us by both Revenue and the assessee to cover the issue clearly in favour of one or the other. Therefore, we may have to turn to common parlance of usage or dictionary definitions. In the decision cited by the assessee of the ITAT, Delhi Bench (supra), reference was made to the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Kirloskar Oil Engines (230 ITR 88) (Bom); their Lordships referred to the definition of aircraft as under :-

26 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 “ In Chambers’ Science and Technology Dictionary, the word "aircraft" has been described only as a "mechanically driven heavier-than-air flying machine with wings of fixed or variable sweep angle". It has not been described to mean gliders, balloons and other flying machines. Similarly, in the definition of "aircraft" in the Aircraft Act, 1934, "balloons, airships, kites, gliders and flying machines" have been added by specific inclusion. It is, therefore, not correct to say that aircraft which are heavier-than-air are not "aircrafts" but are "aero-engines". All aircrafts whether lighter-than-air or heavier-than-air, are "aircrafts". No aircrafts can ever be termed as an "aero-engine" because an "aero-engine" is not an aircraft or aero-plane at all. It is only the power unit of an aircraft. It is thus clear from the above discussion that "aircraft" does not mean only crafts like balloons, airships, helicopters but also means aircrafts heavier-than-air.” 7.3.3 In the light of the above discussion and the observations of the Hon'ble Bombay High Court in the case of Kirloskar Oil Engines (supra), we are of the view that even if not specifically mentioned in Appendix I of the Rules under clause 3(1), helicopter as per common parlance would be more properly understood to be similar to an aircraft – aeroplane – aero engine rather than fall within the provisions of Sec. 43(3) of the Act as held by Revenue. No contrary decision o f any Tribunal or Court has been placed before us by Revenue to establish cases wherein, helicopter has been considered as eligible for depreciation @ 15% under the head ‘Plant’. In this factual and legal matrix of the case, as discussed above, on this issue and respectfully following the observation made by the Hon'ble Bombay High Court in the case of Kirloskar Oil Engines (supra), we hold and direct that the assessee is entitled for depreciation @ 40% on the written down value of its helicopters as claimed. The Assessing Officer is accordingly directed. Consquently, Grounds 10 & 11 of the assessee's appeals are allowed.

27 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 8.1 In these grounds (Supra), the assessee denies itself liable to be charged interest u/s 234A and 234B of the Act for Assessment Year 2010-11 and under Section 234D for Assessment Year 2011-12. The charging of interest is consequential and mandatory and the AO has no discretion in the matter. This proposition has been upheld by the Hon’ble Apex Court in the case of Anjum H Ghaswala (252 ITR 1) (SC) and we therefore uphold the AO’s action is charging the assessee the said interest. The AO is, however, directed to re-compute the interest chargeable u/s 234A and 234B of the Act for the Assessment Year 2010- 11 and 234D of the Act for Assessment Year 2011-12 while giving effect to this order.

Order pronounced in the open court on the 10th day of April,2018.

Sd/- Sd/- (SUNIL KUMAR YADAV) (JASON P BOAZ) Judicial Member Accountant Member Bangalore, Dt.10.04.2018.

*Reddy gp

28 ITA Nos.1104, 1105, 1110 & 1111/Bang/2015 Copy to : 1 Appellant 4 CIT(A) 2 Respondent 5 DR. ITAT, Bangalore 3 CIT 6 Guard File

Senior Private Secretary Income Tax Appellate Tribunal Bangalore.