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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI RAJESH KUMAR, HONBLE
This appeal and cross objection filed by the Revenue and assessee are against the order of the Ld. Commissioner of Income Tax (Appeals)- 2, Mumbai dated 01.03.2016 for the A.Y. 1996-97.
The Revenue in its appeal has raised the following grounds: - “
1. Whether on facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in directing the Assessing Officer to verify each claim of the assessee, therefore, to satisfy that the supplier and lessee should not be one and the same, as the Ld.C1T(A), u/s. 251 of the Act, has no power to set aside the issue to the Assessing Officer, but to adjudicate himself based on evidence on record," “2. Whether on facts and in the circumstances of the case and in law, the Ld.CIT(A) without bringing any fresh material on record has accepted the impugned lease transactions except in the case of Nath Pulp and paper Mills Ltd, as discussed in para 3.4 of the appellate order, without disproving the findings of the Assessing Officer as discussed in the Assessment Order which was earlier confirmed by the Ld.C1T(A), with para 7 of his appellate order dated 13.12.2006, particularly in view of the categorical findings of facts recorded by the Assessing Officer in para 3 of the Assessment Order under consideration dated 21.10.2010, that the Authorized Representative has submitted only the old details again without any fresh supporting or explanations, therefore, the contention or findings of the Assessing Officer that the said transactions are sham or bogus are not disproved by the C1T(A)"
3. Similarly, in the Cross objection the assessee has raised the following grounds:
“1. The Ld. CIT(A) erred in setting aside the order to Assessing Officer instead of allowing the assessee’s appeal on the fact that Hon'ble ITAT has directed the AO to verify whether principals as decided by special Bench in Mid East Portfolio is applicable or not.” 4. As could be seen from the above the common issue in both the appeal of the Revenue as well as the Cross objection of the assessee is regarding disallowance of depreciation on leased assets.
3 ITA.No. 4430/MUM/2016 (A.Y:1996-97) CO.No. 48/MUM/2018 (A.Y:1996-97) M/s. Nath Capital Financial Services Ltd., 5. This is the third round of litigation before the Tribunal on this issue. It is necessary to bring the facts on record as to what happened on the earlier occasions when the matter reached the Tribunal. First round the matter reached the Tribunal for the A.Y. 1996-97 and 1997-98 and the Tribunal in & 2288/Mum/2001 by order dated 10.05.2005 restored the matter to the file of the Assessing Officer with the direction to decide the issue keeping in view the decision of the ITAT Special Bench of Mumbai Tribunal in the case of Mid-East Portfolio Management Ltd. v. DCIT [87 ITD 537] observing as under: - “2. At the very outset, it was pointed out by the Ld. Counsel for the assessee that the issue involved is covered by the earlier order of the Tribunal in assessee’s own case for the Assessment Year 1995-96 in ITA.No. 2151/Mum/2000 dated 09.01.2004 which is put on record. The Ld. Courses for the assessee further contended that the issue involved in the present appeal stands covered by the decision of the Special Bench in the case of Mid-East Portfolio Management Ltd. v. DCIT [87 ITD 537 (Mum.) (SB)]. The Ld. Counsel for the assessee contended that as the issue involved in the instant appeal is identical to the issue raised on the appeal relation to Assessment Year 1995-96 (supra) following the decision of Special Bench matter may be set aside to the file of the Assessing Officer as the preceding year.
After hearing both the parties we in the interest of justice restore the matter to the file of the Assessing Officer with the direction to decide the matter afresh keeping in view the decision of ITA.No., (SB) (supra) as well as decision of this Tribunal in ITA.No. 2151/Mum/2000 dated 09.01.2000 after giving fair and reasonable opportunity of being heard to the assessee.
However, the Assessing Officer without examining the issue in the light of the decision of the Special Bench repeated the disallowance in the set-aside assessment made and the matter again reached the Tribunal and the Tribunal in the second round of litigation in ITA.No. 869 & 870/Mum/2007 dated 17.07.2009 set-aside the orders of the Assessing
4 ITA.No. 4430/MUM/2016 (A.Y:1996-97) CO.No. 48/MUM/2018 (A.Y:1996-97) M/s. Nath Capital Financial Services Ltd., Officer as well as the Ld. CIT(A) and restored the matter to the file of the Assessing Officer for deciding the issue afresh after examining all the relevant aspects of the matter in accordance with law, observing as under:-
“7. We have heard the arguments of both sides and also perused the relevant material placed on record. It is observed that the issue relating to the assessee's claim for depreciation on leased assets as involved in the present case was earlier restored by the Tribunal to the file of the A.O. for deciding the same in the light of the decision of the Special Bench of the ITAT in the case of Mid-East Portfolio Management Ltd (supra) since it was pointed out by the learned counsel for the assessee that the said decision is squarely applicable. A perusal of the assessment order passed by the A.O. in the set aside proceedings, however, shows that neither the ratio of the said decision of the Special bench of the ITAT was clearly discussed by him nor even the guidelines laid down therein to decide the issue. Even the facts involved in the present case were not discussed by him in the light of the said decision to ascertain the applicability of the ratio laid down therein. When it was pointed by the assesses before the Ld. CIT(A) that out of the 10 transactions in question, only one transaction involved sale and lease back of asset as was involved in the case of Mid-East Portfolio Management Ltd. {supra} decided by the Special Bench of ITAT, the Ld. C1T(A) proceeded to hold the remaining nine lease transactions as financial transaction mainly because confirmations from the suppliers of the assets as desired by him could not be filed by the assesse. He did not even examine the relevant agreements entered into by the assessee with the concerned parties which was vital to find out as to whether the relevant lease transactions are mainly financial transactions or they were genuine operational lease. In our opinion, neither the A.O nor the Ld. CIT(A) thus has examined the issue involved in the present case in the right prospective. We, therefore, deem it fair and proper and in the intercut of justice to set aside their orders on this issue and restore the matter to the file of A O. for deciding the same afresh after examining all the relevant aspects of the matter in accordance with law. It is, needless to observe that the A O shall afford sufficient opportunity of being heard to the assessee and shall pass a well discussed and well-reasoned order.”
The Assessing Officer completed the assessment on 21.10.2010 u/s.143(3) r.w.s. 254 of the Act treating all the lease transactions as financial transactions and the principle element of the transaction was excluded and only interest portion from such lease transactions was brought to tax, apart from sustaining the disallowance of depreciation once again on leased transaction. In other words, alternative contention
5 ITA.No. 4430/MUM/2016 (A.Y:1996-97) CO.No. 48/MUM/2018 (A.Y:1996-97) M/s. Nath Capital Financial Services Ltd., of the assessee that, if the transactions are treated as financial transactions then only the interest element has to be brought to tax.
Regarding depreciation on leased transactions the Assessing Office has simply stated that assessee furnished old details once again without any fresh supporting or explanations and therefore under the circumstances assessee has nothing more to explain or submit and accordingly depreciation on leased transactions was denied. The Assessing Officer also tried to explain the ratio of the decision of the Mid-East Portfolio Management Ltd. v. DCIT (supra) and finally alternate contention of the assess was accepted.
We find from the Assessment Order that the Assessing Officer has made no efforts to examine the agreements entered into by the assessee and find out, whether these transactions are genuine lease transactions or mere financial transactions with reference to the terms of the agreements. The Tribunal in the second round of appeal while setting-aside the order of the Assessing Officer clearly stated that, on perusal of the Assessment Order passed by the Assessing Officer in the set-aside proceedings shows that neither the ratio of the said decision of the Special Bench was clearly discussed by Assessing Officer nor even the guidelines laid down therein to decide the issue. It was also observed
6 ITA.No. 4430/MUM/2016 (A.Y:1996-97) CO.No. 48/MUM/2018 (A.Y:1996-97) M/s. Nath Capital Financial Services Ltd., that even the facts involved in the present case are not discussed by the Assessing Officer in the light of the decision of the Special Bench to ascertain the applicability of the ratio of the said decision. It was further observed by the Coordinate Bench that when it was pointed out by the assessee before the Ld. CIT(A) that out of ten transactions in question only one transaction involved sale and lease back as was involved in the case of Mid-East Portfolio Management Ltd. v. DCIT (supra), the Ld. CIT(A) proceeded to hold the remaining nine lease transactions as financial transactions mainly because confirmations from the suppliers of the assets as desired by him could not be filed by the assessee. It was also observed by the Coordinate Bench that the authorities have not examined the relevant agreements entered into by the assessee with the concern parties which was vital to find out as to whether the relevant lease transactions were mainly financial transactions or they were genuine operational lease. Therefore, since the lower authorities have not examined the issue in proper prospective the matter was restored to the file of the Assessing Officer to decide in accordance with law.
In the set-aside proceedings, ignoring all these observations of the Coordinate Bench the Assessing Officer once again by simply stating that no new information has been furnished by the assessee to substantiate
7 ITA.No. 4430/MUM/2016 (A.Y:1996-97) CO.No. 48/MUM/2018 (A.Y:1996-97) M/s. Nath Capital Financial Services Ltd., its claims he went on to explain the ratio of the decision of the Special Bench and ultimately accepted the alternative contention of the assessee that, if the transactions are treated as simple financial transactions, only interest portion should be brought to tax. The Assessing Officer never examined the lease agreements and tried to find out the real nature of the transactions. Though the matter was restored twice to examine the said transactions with proper perspective, there is complete failure on the part of the Assessing Officer to examine the transactions though the Tribunal set-aside the matter for examining the transactions vis-à-vis the applicability of the decision of the Special Bench to the said transactions. Therefore, since the Assessing Officer miserably failed to examine the lease transactions with reference to the agreements vis-à-vis applicability of the decision of the Special Bench in the case of Mid-East Portfolio Management Ltd. v. DCIT (supra) on this ground alone the addition is liable to be deleted.
Before us, Ld. Counsel for the assessee submitted that all the details in respect of the transactions were submitted before the Ld. CIT(A) and the Ld. CIT(A) though examined all the details again restored the matter to the file of the Assessing Officer for verification which is not at all necessary and he should have decided the issue without restoring the 8 ITA.No. 4430/MUM/2016 (A.Y:1996-97) CO.No. 48/MUM/2018 (A.Y:1996-97) M/s. Nath Capital Financial Services Ltd., same to the file of the Assessing officer. Similarly, the Ground raised by the Revenue is that the matter should have been decided by the Ld.CIT(A) instead of restoring the matter to the file of the Assessing Officer.
We find that the Ld. CIT(A) after examining the details furnished by the assessee and analyzing the decision of the Special Bench as well as the decision of the Supreme Court in the case of I.C.D.S. Ltd. v. CIT [350 ITR 527] and M/s. Avasalara Technologies Ltd v. JCIT, Bangalore, in Appeal No. 2996 of 2004 and held as under:-
“3.4. I have gone through the assessment order dated 21,10.2010 passed u/s. 143(3) r.w.s. 254 of the I.T. Act wherein the AO has not allowed depreciation claimed by the appellant of Rs, 62,47,500/- which is sustained as in the original order dated 30.03.1998 and the interest element of Rs. 1,07,76,404/- is assessed as appellant's income from finance business, The above order was passed as per the directions given by Hon’ble ITAT 'E' Bench vide order dated 09.01.2004 where the ratio followed in the case of Mid-East Portfolio Management Ltd. Vs. DC1T (87 1TD 537) (Mum)(SB) in the appellant's case or not. The AR of the appellant has given the full details of depreciation and lease rent for the period 01.04.1996 to 31.03.1997 very elaborately. As per the chart given by the appellant, except the first Lessee at Sr. No. 1, i.e. Nath Pulp & Paper Mills Ltd., all the other suppliers were third party only. For Nath Pulp & Paper Mills Ltd., the supplier is Nath Pulp & Papers Ltd. Further the AR of the appellant also relies on the Supreme Court decision in the following case: (i) I.C.D.S. Ltd. v. CIT 350 ITR 527 (2013). Further, I have also gone through the Supreme Court decision in the case of M/s. Avasalara Technologies Ltd. Vs JCIT, Sp. Rg. 1, Bangalore dated 30.03.2015 vide appeal no. 2996 of 2004 wherein it is held that there was no question of law involved and it is purely on facts and accordingly, the; appeal is dismissed. It is in favour of the department. The relevant portion is as under: "The appellant-assesse herein claimed depreciation on certain machinery allegedly purchased from Andhra Pradesh State Electricity Board (hereinafter referred to as 'APSEB' for short) vide sale deed dated 29.09.1995 which as per the appellant, was given to the APSEB itself on lease. All the authorities below have found, as a fact, that there was no such purchase of machinery and the transaction in question is sham. On that basis, it was concluded that since the machinery was not purchased by the appellant, it never became the owner of the machinery and therefore,
9 ITA.No. 4430/MUM/2016 (A.Y:1996-97) CO.No. 48/MUM/2018 (A.Y:1996-97) M/s. Nath Capital Financial Services Ltd., could not claim any depreciation thereof. These are pure findings of facts recorded by the authorities below. No question of law arises. The appeal is, accordingly, dismissed." So considering the above submissions and legal decision relied by the appellant as well as the revenue, I am of the considered opinion that the appellant company is entitled to claim depreciation on the leased assets except for Nath Pulp & Paper Mills Ltd. Though the AR of the appellant vehemently argues that the confirmation from Nath Pulp & Paper Mills Ltd. has not claimed depreciation on the leased assets. I am not convinced by the above information having the supplier and the lessee found to be the same entity, the ratio followed in M/s. Avasarala Technologies Ltd Vs Jt. CIT, Spl. Rg. I, Bangalore is squarely applicable in the appellant's case and therefore, I am of the considered opinion that depreciation claimed with respect to Industrial Pipelines, both supplier as well as the lessee is found to be of Nath Pulp & Paper Mills Ltd. is confirmed and for the rest of depreciation claim over the assets which were purchased from third party by the appellant company and entered into sale and lease back agreement with different parties are eligible to claim depreciation from sale & lease back assets by the appellant company. However, the AO is directed to verify each such claim and be satisfied that the supplier and lessee should not be one at the same. Accordingly, the appeal is partly allowed on this ground.”
On a perusal of the order of the Ld.CIT(A), we see that the Ld.CIT(A) held that in the transactions by the assessee with Nath Pulp & Paper Mills Ltd., the disallowance on depreciation was confirmed for the reason that both supplier as well as the lessee are found to be Nath Pulp & Paper Mills Ltd., itself. However, the Ld.CIT(A) held that the rest of depreciations claim over the assets which were purchased from third parties by the assessee company and entered into sale and lease back agreement with different parties are eligible to claim depreciation. However, he directed the Assessing Officer to verify each such claim and by satisfaction that the supplier and lessee should not be one at the same time. In our considered view this direction of the Ld.CIT(A) will not serve any purpose as the Assessing officer in this case though set-aside to him twice to 10 ITA.No. 4430/MUM/2016 (A.Y:1996-97) CO.No. 48/MUM/2018 (A.Y:1996-97) M/s. Nath Capital Financial Services Ltd., examine the transaction in detail he miserably failed to examine the transactions and therefore there is no point again directing the Assessing Officer to examine the transactions or part of the transactions for the purpose of allowing the claim of the assessee. Therefore, to that extent the observations of the Ld.CIT(A) are reversed and we confirm the order of the Ld. CIT(A) in holding that assessee is eligible to claim depreciation from sale and lease back assets in respect of the transactions other than Nath Pulp & Paper Mills Ltd. To put an end to the litigation in this case as the matter is very old and relates to the A.Ys. 1996-97, we sustain the order of the Ld. CIT(A) partly as indicated above and the claim of the assessee is directed to be allowed as per the observations of the Ld.CIT(A) without any further verification by the Assessing Officer.
In the result, cross objection filed by the assessee is partly allowed and the appeal of the Revenue is dismissed.
Order pronounced in the open court on the 23rd April, 2018.