EIH LIMITED.,KOLKATA vs. C.I.T KOL - III,KOLKATA, KOLKATA

SHRI M.BALAGANESH, AM :

This appeal of the assessee arises out of the order of the Learned CIT, Kolkata u/s 263 of the Act vide proceedings No. CIT-III/DC(HQ)-3/KOL/263/2012-13/6667 dated 30.1.2013 treating the order passed by the Learned AO u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’) as erroneous and prejudicial to the interests of the revenue.

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Commissioner of Income Tax could not exercise any power under section 263 of the Act. The Commissioner of Income Tax erred in holding that the order of assessment is erroneous and prejudicial to the interest of revenue.

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the interest of the Revenue. The Commissioner of Income Tax failed to appreciate that the appellant was not the owner of the leased cars and was not entitled to purchase them at the end of the lease period and was only using the said cars for the purpose of its business and as such the lease rental paid by the appellant was fully allowable as revenue expenditure.

3.1. The brief facts of this issue is that the assessee filed its return of income for the Asst Year 2008-09 declaring taxable income of Rs. 333,91,11,391/-. The assessment was completed u/s 143(3) of the Act on 31.12.2010 determining the taxable income at Rs. 377,10,55,520/-. One such addition that was made by the Learned AO was towards disallowance of aircraft maintenance expenses treating 60% of the same as held for non-business purposes. The assessee preferred an appeal before the Learned CITA who disposed off the appeal vide his order dated 22.3.2012 giving partial relief to the assessee. On first appeal, the Learned CITA restricted the disallowance of aircraft maintenance expenses to 10%. The assessee as well as the revenue had preferred appeals before this tribunal against the order of the Learned CITA which is pending adjudication. Later the Learned CIT invoked jurisdiction u/s 263 of the Act in order to disallow proportionate depreciation on aircraft as the same was held to be used for non-business purposes in the assessment proceedings and hence correspondingly the depreciation on aircrafts also is to be disallowed proportionately in terms of section 38 of the Act. The Learned CIT did not appreciate the contentions of the assessee and directed the Learned AO to disallow the proportionate depreciation on aircraft in terms of section 38(2) of the Act vide his section 263 order dated 30.1.2013. Aggrieved, the assessee is in appeal before us.

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3.2. The Learned AR argued that during the relevant previous year, the assessee maintained two aircrafts bearing Registration No. VT EJZ (King Air C 90A) and VT – OBR (Hawker 850 XP). The aircraft bearing Registration No. VT-OBR (Hawker 850XP) was acquired during the financial year 2007-08 relevant to assessment year under consideration. The cost of acquisition of new aircraft Hawker 850XP was Rs. 55,87,73,380/-. The assessee had sold one aircraft bearing Registration No. VT-OBE (HS 125 Series 700B) on 8.5.2007 relevant to asst year under consideration. He argued that these aircrafts were primarily maintained by the assessee for the purpose of chartering them to external parties in lieu of which chartering income is earned. He stated that the fact that the assessee company is also engaged in the business of Aircraft Chartering is also evident from the Annual Report of the assessee company. He argued that these aircrafts are also used by the assessee company for the purposes of travelling undertaken by its very senior directors / employees for business purposes for attending important business meetings. Accordingly he argued that the aircrafts were utilized wholly for the business purposes and hence any expenses incurred in connection with the same are allowable as business expenditure. He argued that the assessee had provided the detailed break up of expenses , passenger manifest/ log book / details of flights with name of flights / destination and details of revenue in the course of assessment which clearly manifest the fact that the aircrafts were used for business purposes only. He specifically took us to the relevant portion of the Chartering Revenue declared by the assessee wherein from the details of revenue, by chartering aircrafts to private parties ( either corporate clients or hotel guests) the assessee has earned substantial revenue to the extent of Rs. 1,69,85,132/- which evidences the business nexus of use of aircrafts. He further argued that examination of the passenger manifest would also reveal that in most of the cases there had been chartered flights giving rise to revenue. He further placed reliance on the decision of the co-ordinate bench of this tribunal in assessee’s own case in Asst Year 2002-03 in ITA No. 316 / Kol /2006 dated 11.9.2015, wherein it was held that there cannot be any

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personal element of expenditure that could be incurred by a company as assessee company being a non-natural person. He also placed reliance on the decision of the Hon’ble Gujarat High Court in the case of Sayaji Iron and Engineering Co vs CIT reported in 253 ITR 749 (Guj) which has been accepted by the revenue by not preferring any further appeal to the supreme court. He argued that once it is held by this tribunal in assessee’s own case for Asst year 2002-03 and for subsequent years that no disallowance could be made towards aircraft maintenance expenses for non- business or personal purposes, then correspondingly no disallowance of depreciation on aircrafts could be made and hence the order passed by the Learned AO in granting full depreciation on aircrafts does not suffer from any infirmity. In addition to this, he also argued that this issue has been adjudicated by the Learned AO and Learned CITA in assessment and first appellate proceedings respectively and hence cannot be the subject matter of revision u/s 263 of the Act.

3.3. In response to this, the Learned DR vehemently supported the order of the Learned CIT u/s 263 of the Act and stated that the provisions of section 38(2) of the Act mandate the Learned AO to make a fair estimate of the usage of aircrafts for business purposes and correspondingly the depreciation on aircrafts could be disallowed by the Learned AO. He placed reliance on the observation of the Learned AO who had stated that the persons who had travelled in aircrafts are not directors or employees of the assessee company. He argued that the provisions of section 38(2) of the Act are very clear to disallow proportionate depreciation and hence there is no question of having two views on the impugned issue. He also placed reliance on the following decisions in support of his contentions:-

• Decision of Pune ITAT in the case of Avinash Nivrutti Bhosale vs Adll CIT in ITA No. 1425/PN/2008 dated 22.8.2008 • Decision of Calcutta High Court in the case of Sri Satyasai Properties & Investment Pvt Ltd vs CIT in ITA No. 257 of 2003 dated 10.2.2014

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• (c ) Decision of Patna High Court in the case of CIT vs K.L.Bhasin & Co reported in (1987) 59 CTR Pat 112 dated 18.10.1984

3.4. We have heard the rival submissions and perused the materials available on record including the paper book and case laws relied upon by both the sides. We find that in the assessment order passed u/s 143(3) of the Act , the subject matter as to whether the aircraft has been used for business purpose and expenses incurred in connection with the same should be allowed as business expenses had been considered in detail. The Learned AO after detailed consideration of the issue as a whole had inflicted an adhoc disallowance of 60% in respect of maintenance expenses of aircraft, although allowed full depreciation claimed on aircraft. Being aggrieved, the assessee filed an appeal before the Learned CITA who in turn after adjudicating the subject matter in detail had restricted the disallowance of aircraft maintenance to 10%. We find that the assessee owns aircraft, has capitalized it in the books of accounts and thereby claimed depreciation on aircrafts is a known fact with the Learned AO and is apparent from the books of accounts and the Tax Audit Report. The Learned AO after considering the subject matter proceeded to disallow 60% of the maintenance expenses while allowing 40% of the expenses and depreciation expenditure claimed on aircraft. It is a settled legal proposition that the power of Learned CITA are co-terminus with that of Learned AO and, Learned CITA can do what Learned AO could not do. It can be argued that when the issue in question has been duly considered in assessment order and further adjudicated in appeal by Learned CITA, any further addition in connection with the same matter cannot be made u/s 263 proceedings since as per doctrine of merger provided in Explanation (c ) to section 263(1) of the act , the order of the Learned CITA merges with the assessment order in respect of the said matter. But the crucial point to be addressed here is that the Learned AO and the Learned CITA adjudicated the issue of maintenance expenses of aircraft for business or non-business purposes. They never had an occasion to discuss the issue of allowability of depreciation on aircrafts. Though it could be said that the issue of allowability of

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depreciation on aircrafts flows from the maintenance expenses of aircrafts being used for non-business purposes as could be seen from the show cause notice issued u/s 263 of the Act by the Learned CIT, still we hold that the provisions of Explanation 1 (c ) to section 263(1) of the Act are very clear on this aspect. It would be relevant to reproduce the same herein for the sake of convenience :-

Explanation 1 (c ) to section 263(1) 263 (1) - ------------- Explanation 1 – For the removal of doubts, it is hereby declared that , for the purposes of this sub-section,- (a) ………… (b) …………. (c ) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June 1988, the powers of the Principal Commissioner or Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.

Hence the crucial words matters as ‘had not been considered and decided in such appeal’. Admittedly, the issue of allowance of depreciation has not been considered and decided by Learned CITA in appellate proceedings. As stated supra that though the issue of allowability of depreciation on aircrafts flows from maintenance of aircrafts for business / non-business purposes according to Learned CIT, this aspect of the issue from the angle of depreciation on aircrafts was never considered and decided by the Learned CITA in the appeal. This could be explained by way of an example :- Suppose the allowability of payment of professional fees as deduction is under dispute before the Learned CITA, the same cannot be the subject matter of revision proceedings by the Learned CIT in terms of Explanation 1(c ) to section 263(1) of the Act. However, on the aspect of applicability of provisions of section 40(a)(ia) of the Act on the same professional fees, the revisionary jurisdiction which is supervisory in nature, could be invoked by the Learned CIT u/s 263 of the Act, as admittedly, one

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dimension of the issue ( i.e from the angle of applicability of TDS provisions in terms of section 194J read with section 40(a)(ia) of the Act) was never considered and decided by the Learned CITA in original appellate proceedings. Now coming to the facts of the instant case before us, the aspect of depreciation on aircrafts was never examined / decided by the Learned CITA. Hence the arguments of the Learned AR on the point of Doctrine of Merger is not appreciated and hence is accordingly dismissed.

3.4.1. We find that the assessee owns the aircrafts and were used for providing services to the tourists of the assessee company as well as others who chartered them according to their requirements. These aircrafts were utilized for chartering flights also and assessee had derived chartering income also to the tune of Rs. 1,69,85,132/- which evidences the business nexus of use of aircrafts. We also find that the assessee had stated that sometimes the directors of the assessee company had to use the aircrafts for the purpose of urgent business meetings in different locations and no personal expenses have been charged to revenue. The chartering revenue offered by the assessee has been accepted by the revenue and hence it can safely be concluded that the aircrafts are used for the purpose of its business. In this regard, it would be relevant to refer to the tribunal order in assessee’s own case in Asst Year 2002-03 in ITA No. 316/Kol/2006 dated 11.9.2015, wherein, a similar issue was discussed at length. In the said decision, we had held that that assessee company being a non- natural person cannot have personal element thereon and all the expenditure incurred thereon had to be construed only for business purposes. It was also held that if at all there was any personal element involved in the aforesaid expenditure, the same have to be taxed as perquisite in the hands of the directors or employees and it is only for the Learned TDS officer to look into the alleged violations, if any, on the same and the Learned AO cannot resort to make any disallowance of expenditure on that count on an estimated basis. We also draw support from the decision of the Hon’ble Gujarat High Court in the case of Sayaji Iron and Engineering Co vs CIT reported in 253 ITR 749 (Guj) in this regard. Based on these findings and judicial precedent relied

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upon, it was held that no disallowance of expenditure on maintenance of aircrafts need to be made on an estimated basis towards expenditure incurred for non-business purposes. Hence the issue of maintenance of aircrafts being utilized for business purposes are proved beyond doubt and there is no question of making any disallowance on that count. Once it is established that the aircrafts were used only for business purposes, there is no question of disallowance of depreciation , being proportionate or otherwise, on the same. Hence the provisions of section 38(2) of the Act are not at all applicable to the facts of the instant case. The case laws relied upon by the Learned DR are only on the applicability of section 38(2) of the Act and hence are considered to be irrelevant. Hence on this count itself, it could be safely held that the order passed by the Learned AO in allowing the depreciation on aircrafts could not be treated as erroneous much less prejudicial to the interests of revenue. In this regard, we place reliance on the decision of the Hon’ble Apex Court in the case of CIT vs Max India Ltd reported in (2007) 295 ITR 282 (SC) wherein their Lordships relying on the earlier decision rendered in Malabar Industrial Co Ltd vs CIT reported in (2000) 243 ITR 83 (SC) has held thus:

“The phrase ‘prejudicial to the interest of the Revenue’ in section 263 of the IT Act, 1961, has to be read and in conjunction with the expression ‘erroneous’ order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interest of the Revenue. For example, when the AO adopts one or two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue , unless the view taken by the AO is unsustainable in law.”

In view of the aforesaid findings and judicial precedent relied upon, we hold that no revision proceedings u/s 263 of the Act would lie on the issue of disallowance of depreciation. Hence the grounds raised by the assessee on this issue are allowed.

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4.1. The brief facts of this issue is that the assessee has taken certain vehicles on lease from Orix Auto Infrastructure Services Limited. The assesse paid total lease rent of Rs. 393.52 lakhs consisting of principal repayment of Rs. 302.65 lakhs and finance charges of Rs. 90.88 lakhs to the lessor. The assessee chose to treat the lease transactions differently in its books of accounts and that for the purpose of income tax returns as below:-

Treatment in books of accounts

The leased asset was capitalized in the books of accounts of the assesee at lower of fair value and present value of minimum lease rental) and depreciation claimed in the books on the premise that the assessee is the owner of the leased assets in line with the Accounting Standard (AS) 19 on ‘Leases’ issued by the Institute of Chartered Accountants of India (ICAI). Hence for the purpose of its books, the assessee is the owner of the leased assets and claimed depreciation. In respect of finance charges paid by the assessee to Orix Auto Infrastructure Services Ltd (Lessor) , the same was debited as expenditure in its profit and loss account.

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Treatment for income tax purposes

The assessee disallowed the depreciation on leased assets and finance charges debited to profit and loss account in its statement of total income and claimed the entire lease rentals paid (including principal repayment) as deduction in its return of income.

4.1.1. The assessee claimed that this treatment has been consistently followed by it from the earlier years and the same has been accepted by the revenue in scrutiny assessment proceedings without any dispute. The entire details regarding this issue was elaborately examined by the Learned AO during the course of assessment proceedings after asking for a specific query in this regard. The Learned AO on going through the replies filed by the assessee and after examination of lease deed on record, allowed the claim of lease rentals as deduction in the scrutiny assessment proceedings which the Learned CIT sought to revise u/s 263 of the Act treating the allowabiity of the said deduction as erroneous and prejudicial to the interests of the revenue. According to the Learned CIT, the assessee is not entitled to claim the principal repayment of lease rent as revenue expenditure as the assessee is defacto owner of the vehicles and all the risk and rewards rest with the assessee and for all practical purposes, the assessee is the owner of the vehicles as per terms of contract. Aggrieved, the assessee is in appeal before us on various grounds on this issue.

4.2. The Learned AR argued the relevant clauses in the lease deed wherein he said that the lessee (assessee herein) does not have the option to buy back the assets taken on lease on expiration or termination of the lease. The ownership never vested with the assessee and hence the basic ingredient of section 32 of the Act is not satisfied by the assessee ( i.e the test of ownership) and hence the assessee is not entitled for depreciation. The lease arrangement cannot be considered as one of hire purchase as per Circular No. 9/1943 No. 9 [R.Dis.No. 27(4)-IT/43] dated 23.3.1943, since the

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terms of the agreement does not provide that the equipments shall eventually become the property of the hirer or confer on the hirer an option to purchase the equipments.

4.2.1. He further argued that the treatment given for a particular transaction in the books of accounts need not be the determinative factor for reckoning the taxable income under the provisions of the Act. In support of this proposition, he relied on the following decisions :-

• Kedarnate Jute Manufacturing Co Ltd vs CIT reported in (1971) 82 ITR 363 (SC) • Sutlej Cotton Mills Ltd vs CIT reported in (1979) 116 ITR 1 (SC)

4.2.2. He further argued that the claim of lease rentals have been accepted by the revenue in all the earlier years in scrutiny assessment proceedings on the same set of facts and hence the order passed by the Learned AO cannot be termed as erroneous. In support of this proposition, he relied on the following decisions :-

• Radhasoami Satsang vs CIT reported in (1992) 193 ITR 321 (SC) • CIT vs A.K.J. Security Printers reported in (2003) 264 ITR 276 (Del)

4.2.3. He argued that the taxability of the leased asset is required to be done as per the existing provisions of the IT Act read with the Circulars laid down in this regard more so when the CBDT has itself clarified vide Circular No.2 /2001 dated 9.2.2001 that the AS-19 will have no implication on the allowance of depreciation on assets under the provisions of IT Act. He stated that Circular No. 2/2001 dated 9.2.2001 stipulates that in a lease transaction, the owner of the assets is entitled to depreciation. In the instant case, the lessor being the owner had the right to claim depreciation and the assessee has not claimed any depreciation on the same. The assessee had claimed the entire lease rent as deductible expenditure. He further argued that Circulars are binding on

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the revenue authorities. Hence the Learned AO having followed the Circular for deciding this issue cannot be construed to have passed an erroneous order.

4.2.4. The Learned AR argued that this issue is squarely covered by the decision of the Hon’ble Apex Court in the case of M/s I.C.D.S. Ltd vs CIT reported in (2013) 350 ITR 527 (SC).

4.2.5. He further argued that this issue has been the subject matter of dispute in assessee’s own case for the Asst Year 2011-12 which was resolved by the Honourable Dispute Resolution Panel (‘DRP’ in short) vide proceedings dated 12.10.2015. The issue before the Hon’ble DRP (comprising of three members in the rank of commissioners of income tax) is reproduced herein below for the sake of convenience :-

DRP Directions In view of factual issues involved and applying the ratio decidendi laid down in the decision of the Supreme Court in the case of M/s I.C.D.S. Ltd vs CIT reported in (2013) 350 ITR 527 (SC) , the AO is directed to delete the addition.

4.2.6 Without prejudice to the above arguments, the Learned AR submitted that whether the assessee is allowed depreciation or lease rental , in both the cases, the quantum of claim under the IT Act remains the same. He explained that under the lease transaction, the lessee is not considered as the owner, it is eligible for claim of lease rental which constitute cost of asset as well as finance charges. Where, however,

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under the lease arrangement, the lessee is considered as owner of asset, it is eligible for claim of depreciation over the life of asset (which represent cost of asset) as well as finance charges. Hence, under both the scenarios, an assessee is eligible for same quantum of deduction and the only difference is in respect of period in which the claim is allowed. Hence there is no prejudice caused to the revenue as there is no loss to the exchequer in so far as allowing the amount of claim to the assessee. He according argued that the order of the Learned AO being not anyway prejudicial to the interest of revenue, initiation of section 263 proceedings is not warranted.

4.3. In response to the same, the Learned DR argued that the reliance placed by the Learned AR on the proceedings of Hon’ble DRP for Asst Year 2011-12 which is not relevant for the assessment year under consideration. He placed reliance on the order of the Learned CIT u/s 263 . He argued that principle of res judicata is not applicable to income tax proceedings. He relied on the decision of the co-ordinate bench of Delhi Tribunal in the case of Rio Tinto India (P) Ltd vs ACIT in ITA No. 363 (Delhi) of 2012 dated 22.6.2012 for Asst Year 2007-08 , wherein the Delhi Tribunal on the same set of facts had decided the issue in favour of the revenue.

4.4. We have heard the rival submissions and perused the materials available on record including the detailed paper book filed by the assessee and the case laws relied upon by both the sides. At the outset, we find that the assessee had followed two different treatments in its books of accounts and for income tax purposes in respect of the lease transaction. We agree with the Learned AR that this differential treatment of lease transactions in the books vis- a- vis income tax returns, have been accepted by the revenue in the case of the assessee in the earlier years and accordingly the decisions relied upon by the Learned AR in this regard are well placed. The argument placed by the Learned DR that principle of res judicata does not apply to income tax proceedings have been duly answered in favour of the assessee by the decision of the Hon’ble Apex Court in the case of Radhasoami Satsang vs CIT reported in (1992)

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193 ITR 321 (SC) and the decision of the Hon’ble Delhi High Court in the case of CIT vs A.K.J. Security Printers reported in (2003) 264 ITR 276 (Del).

4.4.1. On merits of the issue, on perusal of the various clauses in the lease deed ( which are not reproduced herein for the sake of brevity) forming part of the paper book vide pages 87 to 98 , we find that the ownership / title on the vehicles always lies with M/s Orix Auto Infrastructure Services Limited (lessor) during the subsistence of the lease vide clause 8 of the lease deed. We find that during the subsistence of this lease arrangement and till the vehicles are delivered back to the lessor, the lessee shall insure the vehicles with the lessor’s name as the owner vide clause 11 of the lease deed. Clause 15 of the Lease deed clearly specifies that upon expiration or earlier termination of the lease, the lessee shall deliver to the lessor the said vehicles at a place designated by the lessor. We hold that since the ownership does not vest with the assessee at any point of time during the subsistence of the lease, the claim of allowability of depreciation u/s 32 of the Act as owner of the vehicles, does not arise. We hold that the lease arrangement cannot be considered as one of hire purchase as per Circular No. 9/1943 No. 9 [R.Dis.No. 27(4)-IT/43] dated 23.3.1943, since the terms of the agreement does not provide that the equipments shall eventually become the property of the hirer or confer on the hirer an option to purchase the equipments. We hold that merely because the lease arrangement has been considered as finance lease for the purpose of AS 19 , that itself does not render the lessee (assessee herein) as the owner of asset for IT Act for claiming depreciation. We find that AS 19 provides for various situations in order to decide as to whether the lease can be considered as finance lease or operating lease for the limited purpose of such AS 19. We find that the assessee had duly complied with the Circulars laid down in this regard more so when the CBDT has itself clarified vide Circular No. 2/2001 dated 9.2.2001 that the AS 19 will have no implication on the allowance of depreciation on assets under the provisions of IT Act. It is well settled that the CBDT Circulars are binding on the revenue. As per this Circular No. 2/2001 dated 9.2.2001, in a lease

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transaction, the owner of the assets is entitled to depreciation. In the instant case, the lessor (Orix Auto) being the owner had the right to claim depreciation and the assessee has not claimed any depreciation as per the provisions of the IT Act and instead had claimed the entire lease rental as revenue expenditure.

We find that the issue is squarely covered by the decision of the Hon’ble Supreme Court in the case of I.C.D.S. Ltd vs CIT reported in (2013) 350 ITR 527 (SC) wherein it was held that :- “Held, affirming the decision of the Tribunal, (i) that the assessee was a leasing company which leased out the trucks that it purchased. Therefore, on a combined reading of section 2(13) and (24) of the Act the income derived from leasing of the trucks would be business income, or income derived in the course of business, and had been so assessed. Hence, it fulfilled the requirement of section 32 of the Act, that the asset must be used in the course of business. The assessee did use the vehicles in the course of its leasing business. The fact that the trucks themselves were not used by the assessee was irrelevant for the purpose of section. (ii) That a scrutiny of the material facts at hand raised 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. The fact that at the end of the lease period, the ownership of the vehicle was transferred to the lessee at a nominal value did not make the assessee in effect a financier. No inference could be drawn from the registration certificate as to ownership of the legal title of the vehicle. 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 Tribunal, was not the case. (iii) That the entire lease rent received by the assessee was assessed as business income in its hands and the entire lease rent paid by the lessee been treated as deductible revenue expenditure in the hands of the lessee. This reaffirmed the position that the assessee was in fact the owner of the vehicle, in so far as section 32 of the Act is concerned. (iv) That, therefore, the assessee was 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, was entitled to

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claim depreciation in respect of additions made to the trucks, which were leased out. (v) That for purposes of the assessee's claim to the higher rate of depreciation, the interpretation of the term "purposes of business", used in second proviso to section 32(1) of the Act would not be any different from that ascribed to it under section 32(1) of the Act. Therefore, the assessee fulfilled even the requirements for a claim of a higher rate of depreciation and was entitled thereto.”

Though this decision has been rendered on the allowability of depreciation on leased assets from the angle of the lessor, the principle laid down could be made very much applicable to the facts of the instant case for allowability of lease rentals in the hands of the assessee (lessee).

We also find that the issue is squarely covered by the decision of the Hon’ble Rajasthan High Court (Jaipur Bench) in the case of Rajshree Roadways vs Union of India & Ors reported in (2003) 263 ITR 206 (Raj) wherein it was held that :-

Held, that under the agreement there was a clause that after completion of lease period, if one per cent. of the total consideration of the trucks was paid, the lessee would be the owner of those trucks. However, the agreement dealt with the ownership of the trucks under the agreement. There was a clear provision that the said machinery shall at all times remain sole and exclusive property of the lessor and the lessee shall have no right, title or interest thereon. It further that irrecoverable undertaking of the lessee that at no time during the currency of the lease agreement, which shall be non-cancellable, would the lessee attempt to capitalise the leased assets in its balance-sheet. As per clause 8, it had been agreed that the ownership of the said assets during the tenure of the lease and inclusive of any renewal options that the lessor may concur indisputably rested with the lessor. So in clear terms, the agreement provided that during the lease period, only the lessor shall be treated as owner of the trucks and not the lessee. Moreover, the lessor had been allowed depreciation on the trucks. Therefore, considering the terms and conditions of the lease agreement and the fact that depreciation on these trucks had been

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allowed to the lessor, the lease rent was deductible as revenue expenditure”-

In the aforesaid case, there was a clause in the lease agreement giving an option to the lessee to buy back the asset on termination of the lease agreement. In the instant case, the assessee (lessee) falls in a better footing , in as much as there is no clause in the lease agreement, enabling the lessee to buy back the assets on termination of the lease arrangement.

We find that the case law relied upon by the Learned DR on the decision of Delhi Tribunal need not be discussed as the issue is squarely covered by the High Court and Supreme Court in favour of the assessee.

4.4.2. Whether order passed by the Learned AO is erroneous

From the facts and circumstances of the case, we find that the order passed u/s 143(3) of the Act by the Learned AO does not suffer from any error. We are in agreement with the arguments of the Learned AR that this issue of allowability of lease rentals has been elaborately examined by the Learned AO in the scrutiny assessment proceedings after posing a specific query in this regard and assessment completed after duly considering the replies filed by the assessee, eventhough no mention is made in the assessment order regarding the same. Evidences in this regard are enclosed in page 72 , 77, 78 & 79 of the paper book of the assessee. We place reliance in this regard on the decision of the Hon’ble Delhi High Court in the case of CIT vs Honda Siel Power Products Ltd reported in (2010) 333 ITR 547 (Del) , wherein it was held that mere absence of discussion of the provisions of section 80IB(13) read with section 80IA(9) of the Act would not mean that the AO has not applied his mind to the said provisions and there is no material to indicate that the AO has not applied his mind to the provisions of section 80IB(13) read with section 80IA(9) of the Act. The

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presumption that the assessment orders u/s 143(3) had been passed upon application of mind has not been rebutted by the revenue. We hold that the impugned issue is squarely covered by the decision of the Hon’ble Supreme Court (supra) and Hon’ble Rajasthan High Court (supra) among others and the circulars issued by CBDT in this regard and hence it can be safely concluded that the order has been passed by the Learned AO by taking one of the possible views and hence the order cannot be termed as erroneous warranting initiation of revision proceedings u/s 263 of the Act. We also find that the issue is accepted by the revenue in assessee’s own case for the Asst Year 2011-12 pursuant to the directions of the Hon’ble DRP. In these circumstances, we hold that the order passed by the Learned AO cannot be considered as erroneous. Hence the grounds raised by the assessee on the issue of allowability of lease rentals are allowed.

Sd/- Sd/- ( N.V. Vasudevan, Judicial Member ) (M. Balaganesh, Accountant Member)

Date 19 /02/2016 Copy of the order forwarded to: 1. The Appellant: M/s. EIH Limited 4 Mangoe Lane, Kolkata-700 001. 2 The Respondent- The Commissioner of Income Tax, Kolkata-III, Aaykar Bhavan, P-7 Chowringhee Square, Kolkata-700 069. 3 The CIT, 4.The CIT(A)

ITA No. 529/Kol/2013- M/s. EIH Limited 19 C-AM