2015 (1) TMI 516 - AT - Income Tax

Tribunal allows appeals for multiple assessment years, grants depreciation, deductions, and cancels penalties.

Industrial Development Bank of India Versus DCIT –Range -3(1), Mumbai

The Tribunal allowed the appeals for Assessment Years 1994-95, 1995-96, and 1996-97, directing the AO to allow depreciation claims and deductions under ... Depreciation - disallowance of claim in respect of assets given on lease by the appellant by holding them as pure finance transactions - Held that:- Despite the fact that the assessee had prayed for joint inspection of leased assets and evidences there off, the revenue authorities brushed aside the requests made. This, is against the principals of natural justice, which can only be remedied by restoring the issues/transactions to the file of the AO for fresh adjudication. We, therefore, set aside the order of the CIT(A) and direct the AO to examine the transactions with Kedia Group of companies, REPL Engineering Ltd., Patheja Bros Forging & Stampings Ltd., and Padma Alloys Castings Ltd. afresh, for the allowance and claim of depreciation as per law and judicial decisions as mentioned in pre para - Decided in favour of assessee by way of remand. Deduction u/s 80M - Held that:- Even 1% disallowance upheld by the learned CIT(A) is on the higher side because the assessee's business was not to earn dividend income and the main activity is to give loans and as the name itself suggests, the bank is engaged in the industrial development of the country by advancing thousands of crores to the entrepreneurs. The loans advanced by the bank during the year under appeal stood over 20,000 crores. We set aside the order of the CIT(A) and delete the addition as made by him - Decided in favour of assessee. Issues Involved:1. Disallowance of depreciation on assets given on lease.2. Taxability of interest on refund received under section 244A.3. Deduction under section 80M.4. Penalty under section 271(1)(c).Detailed Analysis:1. Disallowance of Depreciation on Assets Given on Lease:Assessment Year 1994-95:The primary issue was whether the appellant could claim depreciation on assets given on lease. The CIT(A) had confirmed the disallowance of Rs. 36,42,67,385/- by treating the transactions as finance transactions rather than leases. The Tribunal noted that the appellant, a government-owned financial institution, had clear ownership of the leased equipment, specified lease periods, and agreements that prevented lessees from transferring or mortgaging the assets. The Tribunal found that transactions with Gujarat Electricity Board, Empee Distilleries Ltd., and Bellary Steels & Alloys Ltd. were covered by various decisions, including those of the Mumbai ITAT and the Supreme Court in ICDS Ltd. vs CIT, which allowed depreciation for leased assets. The Tribunal directed the AO to allow the depreciation for these transactions. For other transactions, the Tribunal found that the revenue authorities had not provided a reasonable opportunity for joint inspection and reconciliation, thus restoring these cases to the AO for fresh adjudication.Assessment Year 1995-96:Similar issues were raised, and the Tribunal followed its earlier order for AY 1994-95. It directed the AO to allow depreciation for transactions classified as finance transactions and restored other transactions to the AO for fresh adjudication.Assessment Year 1996-97:The Tribunal reiterated its stance from previous years, directing the AO to allow depreciation for transactions classified as finance transactions and restoring other transactions to the AO for fresh adjudication.2. Taxability of Interest on Refund Received Under Section 244A:For AY 1994-95, the appellant had claimed that interest of Rs. 14,03,63,220/- on refund received under section 244A was not taxable as it was subsequently withdrawn by the AO during regular assessment. The appellant did not press this ground during the hearing, and it was rejected as not pressed.3. Deduction Under Section 80M:Assessment Year 1995-96:The appellant claimed a deduction under section 80M, which the CIT(A) had not properly addressed. The Tribunal referred to its earlier decision in the appellant's case for AY 1992-93, where it had restricted the disallowance to 1% of the dividend income, following the decision in ICICI Ltd. The Tribunal set aside the CIT(A)'s order and allowed the deduction as claimed by the appellant.Assessment Year 1996-97:The Tribunal followed the same reasoning as for AY 1995-96, setting aside the CIT(A)'s order and allowing the deduction under section 80M as claimed by the appellant.4. Penalty Under Section 271(1)(c):Assessment Years 1994-95, 1995-96, and 1996-97:The penalties were sustained by the CIT(A) based on the disallowances and issues in quantum appeals. Since the Tribunal had deleted the additions or set aside various issues for fresh adjudication, it found that the penalties did not have any legs to stand on. The Tribunal set aside the CIT(A)'s orders and directed the AO to cancel the penalties for all three years.Conclusion:The Tribunal allowed the appeals for AY 1994-95, 1995-96, and 1996-97, directing the AO to allow the depreciation claims and deductions under section 80M as per the Tribunal's directions. The penalties under section 271(1)(c) for all three years were also cancelled.