2016 (5) TMI 1284 - AT - Income Tax

Tribunal Directs AO to Reassess Various Issues: Key Outcomes and Directions

The Tribunal partly allowed the appeals, directing the AO to re-examine and re-determine various issues based on the Tribunal's detailed observations and ... Disallowance of depreciation - Held that:- Assessee has shown these assets under its wealth tax return and it has been charged to wealth tax as assets of the assessee for the wealth tax purpose. This fact is not controverted by the Ld. DR. Accordingly the wealth tax Act only the assets which are ‘owned’ by the assessee are chargeable to tax. Therefore, now in Income tax Act it cannot be disputed that the assets are not owned by the assessee. Ld. DR has also not shown us any reasons to say that the meaning of the word ‘owned’ in wealth tax Act and its meaning as per section 32 of the Income Tax Act for claim of depreciation are different. It was further submitted that no disallowance has been made by the AO himself for Assessment Year 2011-12 where the claim of the assessee was made in the return of income. Therefore, in subsequent years revenue has accepted the claim of the assessee. This fact is also not controverted by ld. DR. We are of the view that if there being no change either in facts or in law, as compared to this year and later on years where the claim of the assessee of depreciation is accepted , the disallowance in this year cannot be sustained. Addition towards interest of sticky loans and advances - Held that:- Respectfully following the decision of Honourable Delhi high court in CIT Vashisth Chay Vyapar limited (2010 (11) TMI 88 - Delhi High Court ) and decision of coordinate bench in case of the assesse for AY 2003-004, we direct the AO to delete the addition of ₹ 8,08,14,506/- towards interest of sticky loans and advances which was not recognized as income by the appellant in accordance with the mandatory prudential norms issued by the Reserve Bank of India. In the result ground no 3 of the appeal is allowed. Disallownce of actual loss of sale repossessed assets and forming an integral part of the non-banking financial activity of the appellant - Held that:- the assessee is entitled to claim of loss on sale of repossessed assets. In view of the decision, Hon’ble Delhi High Court in the case of CIT Vs. Citicorp Maruti Finance Ltd [2010 (11) TMI 802 - Delhi High Court ] wherein it is held that loss of repossessed vehicle sold is also deductible to the assessee. The above decision of Hon’ble Delhi High Court has further been upheld by Hon’ble Supreme Court [2012 (1) TMI 290 - SUPREME COURT]. Therefore, respectfully following the decision of Hon’ble supreme court we allow the claim of the assessee of loss arising on sale of repossessed vehicle, delete the disallowance Transfer pricing adjustments - MAM determination - Held that:- Services that the assessee has demonstrated and satisfied the Need Test, Evidence Test or rendition test and benefit test as envisaged u/s 92 (2) of the act and the services provided by the AE are neither duplicative or shareholder’s activity, therefore the LD. AO/ ld. TPO is directed to determine Arms’ length price of these services based on the documents submitted by the assessee by determining ‘tested party’, determination of ‘most Appropriate method’ and ‘Comparability analysis’. For these purposes these grounds of transfer pricing is set aside to the file of Ld. TPO. Issues Involved:1. Disallowance of depreciation on leased vehicles.2. Addition on account of interest on sticky loans.3. Disallowance of loss on sale of repossessed assets.4. Transfer pricing adjustment for intra-group services.5. Levy of interest under Section 234D.6. Withdrawal of interest granted under Section 244A.7. Initiation of penalty proceedings under Section 271(1)(c).8. Non-processing of the revised return of income.Detailed Analysis:1. Disallowance of Depreciation on Leased Vehicles:The assessee claimed depreciation on vehicles leased out to customers, which was disallowed by the AO on the grounds that the vehicles were registered in the name of the lessees, not the assessee. The AO viewed the transactions as finance transactions rather than lease transactions. The DRP upheld this view, noting the issue had not reached finality in past assessments. The Tribunal referred to the Supreme Court decision in ICDS Ltd. vs. CIT, which clarified that depreciation is allowable to the owner using the asset for business purposes. The Tribunal directed the AO to re-examine the claim in light of this decision.2. Addition on Account of Interest on Sticky Loans:The AO added interest on non-performing assets (NPAs) to the income, arguing it had accrued. The assessee contended that, according to RBI prudential norms, such interest should not be recognized as income. The Tribunal referred to the Delhi High Court decision in CIT vs. Vasisth Chay Vyapar Ltd., which supported the assessee's stance. The Tribunal directed the AO to delete the addition, recognizing that income on NPAs should not be accrued as per RBI norms.3. Disallowance of Loss on Sale of Repossessed Assets:The AO disallowed the loss claimed on the sale of repossessed assets, considering it not actually incurred. The assessee argued the loss was real and integral to its business. The Tribunal referred to the Delhi High Court decision in CIT vs. Citicorp Maruti Finance Ltd., which allowed such losses. The Tribunal directed the AO to delete the disallowance, recognizing the loss as deductible.4. Transfer Pricing Adjustment for Intra-Group Services:The TPO determined the arm's length price (ALP) for intra-group services at NIL, arguing the services were not required, not rendered, or duplicative. The DRP upheld this view but allowed 5% of the cost as ALP for AY 2008-09. The Tribunal noted the need, rendition, and benefit tests were satisfied by the assessee, and the services were not duplicative or shareholder activities. The Tribunal directed the TPO to re-determine the ALP based on proper comparability analysis, considering the foreign AE as the tested party and using the TNMM method.5. Levy of Interest under Section 234D:The AO levied interest under Section 234D as a consequence of the disallowances. The Tribunal noted this was consequential and did not require separate arguments, dismissing the ground.6. Withdrawal of Interest Granted under Section 244A:The AO withdrew interest granted under Section 244A due to the disallowances. The Tribunal, noting this was consequential, dismissed the ground.7. Initiation of Penalty Proceedings under Section 271(1)(c):The AO initiated penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income. The Tribunal noted this was premature and dismissed the ground.8. Non-Processing of the Revised Return of Income:The assessee filed a revised return, which the AO did not process. The Tribunal directed the AO to consider and process the revised return if it was filed in accordance with Section 139(4) of the Act.Conclusion:The Tribunal partly allowed the appeals, directing the AO to re-examine and re-determine various issues based on the Tribunal's detailed observations and directions.