2007 (2) TMI 238 - AT - Income Tax

Tribunal Partially Allows Appeals: Upholds Disallowances, Orders Modifications, Recognizes Genuine Transactions.

The Tribunal partially allowed both the assessee's and the department's appeals. It upheld several disallowances against the assessee, including those ... Levy of interest u/s 234B - CIT(A) dismissed the ground by observing that the interest u/s 234B is mandatory and, therefore, the same is not appealable - HELD THAT:- We find that the assessee has not challenged the quantum of interest but has challenged chargeability of interest u/s 234B itself. The Supreme Court in the case of Central Provinces Manganese Ore Co. Ltd. v. CIT [1986 (5) TMI 3 - SUPREME COURT] has held that where charge ability of interest itself challenged then the same is appealable. As stated above, the assessee has challenged the chargeability of interest u/s 234B; therefore, the issue has to be decided on merit. Since no decision has been given by the CIT(A) on merit, therefore, we set aside this issue to the file of the ld. CIT(A) to decide the same afresh on merit after affording opportunity of being heard to the assessee and after taking into consideration the provisions of law as well as the decision of the Hon'ble Uttaranchal High Court in the case of Sedco Forex International Drilling Co. Ltd.[2003 (10) TMI 40 - UTTARANCHAL HIGH COURT]. We order accordingly. Disallowance of depreciation on sale and lease back of assets - HELD THAT:- We have also taken into consideration the decision of the CIT(A) and found that the ld. CIT(A) has gone on the basis of general presumption that the assets were leased out to the bank just to secure the amount given on loan otherwise there was no occasion to sale and lease back transaction with the bank. The CIT(A) has considered various aspects and confirmed the findings of the Assessing Officer that the transactions were non-genuine as they were colourable just to reduce the tax burden by claiming higher depreciation. The CIT(A) has not taken into consideration the aspect that the assessee is in regular leasing business and about 7000 transactions had been entered into by the assessee with various parties for sale and lease back. The assessee who is a banking corporation was maintaining all the records in regard to each and every item, proper Profit & Loss A/c is maintained. All the details were furnished and not a single was detected by the Assessing Officer that these are genuine or are only paper transactions. The lease rental is received regularly and has been shown in the Profit & Loss A/c. The other parties who are paying lease rentals to the assessee have shown lease rental paid to the assessee. The department has not brought a single case on record that the parties who had paid lease rental has not shown/claimed the deduction on account of lease rental but has claimed deduction of interest paid to assessee bank. Therefore, merely on suspicion or conjectures, doubting that the transactions are entered into for claiming higher depreciation, in our considered view were not justified either at the end of the Assessing Officer or at the end of ld. CIT(A), who enhanced the disallowance on the entire transactions entered into in the year under consideration. Thus, we set aside the orders of the authorities below and direct the Assessing Officer to allow the claim of depreciation on all items claimed by the assessee. We order accordingly. In the result, the appeals of the assessee and the department are allowed in part. Issues Involved:1. Disallowance under Rule 6D2. Disallowance under Section 37(2A)3. Disallowance of earlier year's expenditure4. Disallowance of capital expenditure5. Disallowance under Section 37(4)6. Disallowance of depreciation and other claims7. Deduction under Section 36(1)(viii)8. Disallowance of expenses under Section 80M9. Charging of interest under Section 234B10. Disallowance of depreciation on sale and lease back of assets (SLB)Issue-wise Detailed Analysis:1. Disallowance under Rule 6D:The assessee contested a disallowance amounting to Rs. 1,47,165 under Rule 6D. The Tribunal decided against the assessee, citing the precedent set by the Bombay High Court in CIT v. Aorow India Ltd. [1998] 229 ITR 325.2. Disallowance under Section 37(2A):The assessee's appeal against a disallowance of Rs. 3,84,986 under Section 37(2A) was dismissed as the issue was not pressed during the hearing.3. Disallowance of Earlier Year's Expenditure:The Tribunal directed the Assessing Officer to modify the order concerning the disallowance of Rs. 18,94,929 based on the Tribunal's decisions for earlier and subsequent years, where similar grounds were allowed.4. Disallowance of Capital Expenditure:The appeal against the disallowance of Rs. 3,08,357 as capital expenditure was dismissed since it was not pressed during the hearing.5. Disallowance under Section 37(4):The Tribunal upheld the disallowance under Section 37(4) in view of the Supreme Court's decision in Britannia Industries Ltd. v. CIT [2005] 278 ITR 546, deciding against the assessee.6. Disallowance of Depreciation and Other Claims:Grounds related to disallowance of depreciation as per revised return, additions of write-backs, disallowance under Section 37(1), and deduction under Section 36(1)(viia) were dismissed as they were not pressed.7. Deduction under Section 36(1)(viii):The Tribunal decided against the assessee regarding the deduction under Section 36(1)(viii), following its earlier decision for the assessment year 1986-87.8. Disallowance of Expenses under Section 80M:The Tribunal found that no disallowance on account of expenses could be made while computing the deduction under Section 80M, referencing the Bombay High Court's decision in CIT v. Emerald Co. Ltd. [2006] 284 ITR 586, which stated that expenses related to the business of trading in shares should not be deducted again from the dividend income for the purpose of Section 80M.9. Charging of Interest under Section 234B:The Tribunal remanded the issue of charging interest under Section 234B back to the CIT(A) for a fresh decision on merit, considering the Supreme Court's ruling in Central Provinces Manganese Ore Co. Ltd. v. CIT [1986] 160 ITR 961, which allows for an appeal when the chargeability of interest itself is challenged.10. Disallowance of Depreciation on Sale and Lease Back of Assets (SLB):The Tribunal allowed the assessee's claim for depreciation on SLB transactions, distinguishing the Special Bench decision in Mid East Portfolio Management Ltd. v. Dy. CIT [2003] 87 ITD 537 (Mum.) and relying on the Rajasthan High Court's decision in CIT v. Rajasthan State Electricity Board [2006] 160 Taxman 19, which held that such transactions were genuine and entitled to depreciation. The Tribunal also considered various other judicial precedents and Board instructions, ultimately concluding that the transactions were genuine and the assessee was entitled to depreciation.Department's Appeal:1. Addition under Section 6D:The Tribunal reversed the CIT(A)'s order and restored the Assessing Officer's decision, aligning with its earlier decision against the assessee.2. Addition under Section 37(2A):The Tribunal confirmed the Assessing Officer's decision, dismissing the department's ground.3. Deletion of Club Expenses:The Tribunal upheld the CIT(A)'s decision to allow the deletion of Rs. 12,000 being club expenses, following the order for the assessment year 1990-91.4. Addition under Section 37(4):The Tribunal reversed the CIT(A)'s order and restored the Assessing Officer's decision, in line with the Supreme Court's decision in Britannia Industries Ltd. v. CIT.Conclusion:Both the assessee's and the department's appeals were allowed in part. The Tribunal provided detailed rulings on each issue, often referencing higher judicial precedents and past decisions to support its conclusions.