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Income Tax Appellate Tribunal, MUMBAI BENCHES “E”, MUMBAI
Before: SHRI D. KARUNAKARA RAO (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
1. This appeal has been directed against order dated 19/03/2014 passed by the Commissioner of Income Tax (Appeals)-6, Mumbai, pertaining to Assessment Year 1999-2000, whereby the Ld. CIT (A) partly allowed the appeal filed by the assessee against assessment order passed u/s 143 (3) r.w.s. 147 of the Income Tax Act, 1961 (for short ‘the Act’).
2. Brief facts emanating from the record and the pleadings of the parties, which require necessary mention for the purpose of adjudicating the issues involved in this case are that the assessee company filed its return of income for the assessment year under consideration declaring the total income of Rs. 2 Assessment Year: 1999-2000 71,22,68,710/-. The assessment was completed u/s 143 (3) of the Act determining the total income at Rs. 1,14,37,33,390/-. Later on notice u/s 148 of the Act was issued and the reasons recorded for reopening of the assessment was provided to the assessee. The relevant portion of the reasons recorded reads as under: “From the record, it was seen that the assessee has paid Rs. 43.42 as lease that rental to M/s. L&T Ltd. which has been allowed as revenue expenditure in the hands of the assessee. The assessee had acquired a captive power plant including energy saving devices and boilers for an amount of Rs. 14 cr in FY 1994-95 relevant to AY 1995-96. Depreciation @ 100% is allowable on the entire machinery but the assessee did not claim any depreciation on the said machinery and instead, in the same year entered into sale and lease back transactions with three parties including M/s L&T Ltd. In the case of M/s L&T Ltd., the above sale and lease back transaction was held as finance transaction in the assessment u/s 143 (3) and depreciation claimed by M/s L&T Ltd. claimed @ 100% of asset value in AY 1995-96 was disallowed. The stand taken by AO was confirmed by the CIT (A). However, during the assessment proceedings u/s. 143 (3) in the case of M/s. L&T Ltd. to whom lease rental has been paid, a deduction of Rs. 13,66,854/- has been allowed as capital recovery component out of lease rental received treating the said lease transaction entered by the assessee as finance transaction. Therefore, the amount of Rs. 13.66 cr should have been disallowed in the hands of the assessee being repayment of loan which has resulted in escapement of income by Rs. 13,66,12,854/-.”
In response to notice u/s 143(2) and 142(1) the authorized officials of the assessee company appeared before the AO and vide written submissions dated 27/01/2005 opposed the reopening proceedings and further submitted that the proposed disallowance of Rs. 13,66,12,854/-pertains to income/ loss of the Babrala Fertilizer Division which is covered under section 80IA. However, the AO rejecting the contention of the assessee made disallowance of the said amount being repayment of loan holding that the assessee has entered into sale and lease back transaction with M/s L & T Ltd. While disallowing Rs. 3 Assessment Year: 1999-2000 13,66,12,850/-, 30% of the same was disallowed u/s 80IA which comes to Rs. 4,09,83,855/- accordingly the AO made disallowance of Rs. 9,56,28,995/- being made on account of re-payment of loan which is capital in nature and determined the total income of the assessee at Rs. 1,23,93,62,390/-.
3. Aggrieved by the said order, the assessee challenged the same before the Ld. CIT (A). The Ld. CIT (A) following the decisions of ITAT, Mumbai, rendered in 2890, 2803 and 3533/Mum/2008 & 2001 dated 01/05/2013, M/s Larsen and Toubro vs. The JICT Special Range-3 and vice versa, in which the Mumbai Bench of the Tribunal has decided the identical issue in favour of the assessee and set aside the findings of the CIT(A) and issued direction to the AO to delete the disallowance lease rent to the extent of Rs. 9,56,28,995/-
The revenue is in appeal against the impugned order passed by the Ld. CIT (A) on the following effective grounds:-
“The order of the CIT (A) is opposed to law and facts of the case.”
Whether on the facts and circumstances of the case and in law the ld. CIT (A) was correct in allowing depreciation on assets out, when the related transactions were purely financial transactions.
Whether on the facts and in the circumstances of the case, the ld. CIT
(A) was right in not holding that the sale and leased back transaction is merely a financial transaction as was held in the case of L&T Ltd. without appreciating the fact that the Department has not accepted the decision of the Hon’ble ITAT in the case of L&T Ltd. and an appeal to Hon’ble High Court has been filed. 4. For these and other grounds that may be urged at the time of hearing, the decision of the CIT (A) may be set aside and that of the AO be restored.”
Before us, the Ld. Departmental Representative relying on the findings of AO submitted that the Ld. CIT (A) has deleted the addition without taking into 4 Assessment Year: 1999-2000 consideration that sale and lease back transaction is merely a financial transaction as has been held in the case of L & T Ltd. without appreciating the fact that Department has preferred appeal against the order of the ITAT in the case of L&T Ltd. Therefore, the decision is liable to be set aside.
On the other hand, the Ld. Counsel for the assessee submitted that the Ld. CIT (A) has rightly held that the disallowance made by AO is not justified. In the light of the findings of the ITAT, Mumbai in the case of L & T Ltd. Vs. JCIT (Supra) since the findings of Ld. CIT (A) based on the order of the Tribunal passed any aforesaid case. There is no merit in the appeal filed by the revenue hence the same is liable to be dismissed.
Ld. Counsel for the assessee apart from the order of the ITAT, Mumbai passed in L & T Pvt. Ltd. (supra) placed reliance on the decision of Hon’ble Supreme Court passed I.C.D.S Ltd. Vs. CIT 2013 350 ITR 527, Hon’ble Bombay High Court in CIT Vs. Apollo Invest (I) Ltd. 2016 382 ITR 0033 order by ITAT, Mumbai passed in Bombay Dyeing and Manufacture Company Ltd. Vs. DCIT, Central Circle-8, 2002 for the Assessment Year 1996-97 and other cases to substantiate the claim of the assessee.
We have heard the rival submissions and also perused the material on record including the decisions relied upon by the Ld. Counsel for the assessee, in the light of respective submissions of the parties.
The Ld. CIT(A) has decided the issue involved in this case in favour of the assessee holding as under:
So far as the disallowance made in respect of the net amount of lease rent at Rs. 9,56,28,995/- (Rs. 13,66,12,854/- as reduced by the deduction u/s 80(IA), at Rs. 4,09,83,855/-), it is seen that the transaction of sale and lease back between the appellant and L & T Limited has been held to be a valid transaction by Hon’ble ITAT while deciding the appeal in the case of 5 Assessment Year: 1999-2000 L & T Limited, as per their order dated 01/05/2013 in 2803 & 3533/Mum/2000 & 2001. In this case, Hon’ble ITAT has followed the decision of Hon’ble Supreme Court in the case of Hon’ble ITAT has followed the decision of Hon’ble Supreme Court in the case of I.C.D.S. Ltd. 350 ITR 527. Since the transaction of the appellant was only with L & T Limited, it automatically follows that the issue has been decided in favour of the appellant by Hon’ble ITAT. Hence the disallowance made by the AO is not justified. The disallowance of lease rent to the extent of Rs. 9,56,28,995/- is therefore directed to be deleted.
We notice that the co-ordinate Bench of the Tribunal has decided the similar issue in favour of the assessee in L & T vs. JCIT (supra) holding as under: “Ground No. 11 relates to the disallowance of claim for depreciation of Rs. 69.02 crores in respect of certain assets given on lease by the assesse. The issue relates to the purchase of assets and immediately leased back the same to the vendors in three different sale and lease back transactions relating to Tata Chemicals Ltd., Madhya Pradesh State Electricity Board and Dattar Switch Gear Ltd. Assets totaling to Rs. 13604.92 lakhs were purchased from these three companies and immediately given on lease back to them. The assessee has claimed depreciation amounting to Rs. 69.02 crores in respect of these leased assets. After considering various judicial pronouncement, the Ld. CIT (A) confirmed the disallowance of depreciation of Rs. 69.02 crores.
The issue relating to the claim of depreciation vis-à-vis sale and lease back of assets has been considered by Mumbai Special Bench of the Tribunal in the case of IndusInd Bank Ltd. Vs. ACIT 135 ITD 165. However, this entire controversy has been set at rest by the decision of the Hon’ble Supreme Court in the case of I.C.D.S Ltd. Vs. CIT 350 ITR 527 wherein the Apex Court has allowed depreciation in the case of sale and leased back transaction. This decision of the Hon’ble Supreme Court has been followed by the Tribunal in the case of Development Credit Bank Ltd. Vs. DCIT in and 27 others. After considering the facts of the case in the light of these judicial decisions, we find that the issue is squarely covered in favour of the assessee. Accordingly, we direct the AO to allow the depreciation on sale and leased back assets (SLB). However, we find 6 Assessment Year: 1999-2000 that while disallowing the claim of depreciation, the Ld. CIT (A) has directed the AO to exclude from the assessed income of the value of the capital component of the lease rentals of the year. Since we have allowed the claim of depreciation, the AO is directed not to give any other benefit to the assessee and if he has excluded the value of capital component of the lease rent of the year, the same should be added back. Ground No. 11 is accordingly allowed.”
The issue involved in the present case is identical to the issue involved in the case of L & T vs. JCIT (supra). The Ld. CIT (A) has allowed the appeal of the assessee by following the order of the co-ordinate Bench of the Tribunal rendered in the case of L & T vs. JCIT aforesaid. The Ld. DR apprised the Tribunal that the department has preferred appeal against the order passed by the Tribunal in L& T vs. JCIT (supra), before the Hon’ble High Court. Under these circumstances we hold that the Ld. CIT (A) has rightly followed the decision of ITAT and decided the issue in question in against the revenue. Hence, the impugned order does not suffer from any infirmity to interfere with the same. We, accordingly, uphold the findings of the Ld. CIT (A) and dismiss the sole ground of appeal of the revenue.
In the result, appeal filed by the revenue for the assessment year 1999- 2000 is dismissed.