TaxTMI 
TaxTMI 
2012 (10) TMI 175
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....tion on leased assets to the tune of Rs.10,41,63,512/-. The learned CIT(A) ought to have allowed the depreciation entirely based on the orders passed by the Honourable Income Tax Appellate Tribunal, Mumbai (ITAT)for Assessment Years 1999-2000 & 2000-01 in the assessee's own case. Without prejudice to the above, the learned CIT(A) further erred in confirming the action of AO of disallowing Lease depreciation, disallowed depreciation for opening block as well, where as per the orders passed by the Honourable ITAT, lease assets capitalized till 31st March 2000 are allowed for depreciation claim. The depreciation claim on Lease assets capitalized till 31st March 2000 is Rs. 7,55,31,921/- and Principal component on same is Rs. 3,62,27,781/-. Further, without prejudice to the above, since there are no distinguishable facts in the assets capitalized after 31st March 2000 (it being the date upto which the Honourable ITAT has allowed depreciation), the CIT(A) ought to have allowed the depreciation on the leased assets capitalized after the aforesaid date. 2. The learned CIT(A) further erred in confirming the treatment of UPS as electrical installation and not as an integral part....
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....ar 1999-2000 and 2000-01 in assessee's own case. During the course of assessment proceedings, while going through the depreciation chart enclosed alongwith Tax Audit report, the Assessing Officer found that the assessee had claimed depreciation to the tune of Rs. 10,41,63,512/- on leased assets. The AO sought explanation from the assessee as to why the entire depreciation claimed should not be disallowed as the leased transaction is a mere financing activity. For this preposisiton the AO relied upon the decision of Hon'ble Apex Court in the case of Sundaram Finance Ltd. Vs State of Kerala reported in 1966 AIR 1178 and also the decision of Apex Court in the case of Damodar Valley Corpn. Vs State of Bihar reported in 12 STC 101. 5. In response to this query, the assessee replied that the claim of depreciation is as per the provisions of Sec. 32 of the Act as the assessee company is the legal and rightful owner of the leased assets and therefore entitled to depreciation on the basis of being the owner of the assets in the business of leasing. It was further submitted that the transactions cannot be treated as merely finance/loan transactions as the assets are purchased by th....
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....in A.Y. 1996-97 and 1997-98, the department has accepted the orders of Ld. CIT(A) wherein it was held that assessee is entitled to depreciation on leased assets. The Ld. CIT(A) concluded that the issue has not been examined on merits by the ITAT. Ld. CIT(A) further pointed out that similar issue came up for consideration in assessee's own case for A.Y. 2002-03 wherein the Ld. CIT(A) upheld the disallowance of depreciation on leased assets. Since issue was identical, the Ld. CIT(A) followed the findings of his predecessor in the appeal order for assessment year 2002-03. 8. Before us, the Ld. Counsel for the assessee argued that assessee is entitled for depreciation u/s. 32 and the decisions of lower authorities are on wrong facts. The Ld. Counsel further relied upon the decision of Tribunal in assessee's own case for assessment year 1999-2000 in ITA No. 4053/M/03, ITA No. 2325/M/04 for assessment year 2000-01 and ITA No. 7418/M/05 for assessment year 2002-03 and concluded that the same should be followed for the year under consideration as the facts in issue are identical with the facts in issue in the earlier assessment years cited hereinabove. 9. We have heard the rival subm....
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....ot the manufacturer/dealer of the equipment (iv) That having selected the equipment, the lessee has signed this agreement relying entirely on its own judgement and not on any statements made by the lessor or the agents or servants of the lessor or the supplier. 10. On perusal of the terms and conditions of the agreement highlighted herein above, we have no hesitation to hold that it is an agreement of finance lease and not operating lease. The question which is now to be decided is whether any depreciation can be allowed to lessor in case of the genuine finance lease. Allowability of depreciation is governed by Sec. 32. The twin conditions of ownership and user of asset for the purpose of business are required to be cumulatively satisfied so as to allow depreciation. The question is whether lessor satisfies the preliminary condition of being an owner of the asset in a case of finance lease. As highlighted by us that under clause-15 of the agreement it is the lessee who has chosen the type of equipment, the model and other special feature required and which are suitable for lessees' purposes. The role of the lessor is only to provide finance. The cost of insurances were bor....
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....that in all these three appeals, the Tribunal has allowed the depreciation only on the ground that the Ld. CIT(A) has allowed depreciation in assessee's own case for A.Y. 1996-97 and 1997-98. We find that in none of these three appeals, the Tribunal has gone into the merits of the case. Further all these decisions of the tribunal were delivered prior to the decision of the special Bench of the Tribunal . Since we have discussed the facts in detail and we have also the benefit of the Special Bench decision of ITAT Mumbai (supra), in our humble opinion, the decision of the Special Bench deserves to be followed and is accordingly followed. 12. Ground No. 2 relates to the depreciation claimed on UPS at the rate of 60% but allowed by the lower authorities at the rate of 25% treating UPS as electrical installation and not as an integral part of the computer. 13. During the course of assessment proceedings, the AO sought details on the claim of depreciation on electrical hardware and software license. The assessee filed detailed chart in respect of depreciation claimed on UPS. The assessee substantiated its claim of depreciation at the rate of 60% by stating that UPS is a device whi....
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....ng for the depreciation at the rate of 25%. 20. Before the Ld. CIT(A) the assessee submitted that with effect from assessment year 2003-04 in Appendix 1 (Rule 5 of the I.T. Rules) "Table of rates at which depreciation is admissible: at Part A (III)(5) has been changed from "Computer" to "computer" including computer software". Note 7 to the table defines computer software as any computer programme recorded on any disc, tape, perforated media or other information storage device. The software used by the assessee falls within the aforesaid definition of computer and hence will form part of computer. 21. The Ld. CIT(A) did not agree with the submissions of the assessee and held that the AO has discussed the issue in details and therefore upheld the disallowance of excess depreciation claimed by the assessee. 22. Before us, the Ld. Counsel reiterated what was submitted before the lower authorities. The Ld. Departmental Representative supported the orders of lower authorities. 23. On going through the observations on this issue by the AO, we find that the AO has not gone into details of the software purchased by the assessee. The assessee has exhibited the copy of inv....
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....alidation of cheque, the same would be done and therefore the liability still exists and therefore no addition can be made u/s. 41(1) of the Act. The assessee further elaborated his submission by stating that under provisions of Sec. 205C of the Companies Act, 1956 every company had to transfer amount outstanding for a period of more than 7 years to a fund called investor Education & Protection Fund. In other words, if the assessee did not pay these outstanding and the customer never approached, the assessee any way , had to pay this amount to the Government's investor fund. This explanation by the assessee did not find any favour from the AO. The AO relied upon the decision of the Hon'ble Bombay High Court in the case of CIT Vs Benett Coleman and Co. Ltd. 201 ITR 1021,1993 wherein the Hon'ble Court held that "where the assessee wants to contend that despite his own action of the nature indicated above the liability still survives, the onus will be on him to bring sufficient materials on record to satisfy the authorities concerned in that regard. The recovery of the amount was barred by limitation and hence, the claim was no more enforceable. Once this legal position was reached co....
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.... the tune of Rs. 1,29,86,013/-. 31. During the course of assessment proceedings, the AO found that the assessee has debited bad debts to the tune of Rs. 8,45,61,276.69. The assessee was asked to submit the details of bad debts written off and the nature of these debts alongwith the efforts made to recover of such debts with documentary evidences. In its reply, the assessee explained the nature of transaction. It was the contention of the assessee that since it operates in Rural and Semi-urban area in India where public domain information regarding credit worthiness of the customer is not available. Many of these are of agriculture background and do not have banking culture. Hence, the appraisal of the loan is based on personal discussions and not on documentation. This results into shortfall in repayments from the borrower. When the customer fails to deposit money on due date or fails to pay outstanding dues on receipt of cheque return advice, the Executives of the company follow up with the customers for recovery of outstanding dues. Sometimes, they fail to recover the outstanding amount. If the company executives do not find it proper to grant extension of time for repaymen....
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....rmed the additions made by AO. 34. Before us, the Ld. Counsel for the assessee reiterated that after the amendment w.e.f. 1.4.1989, the only obligation upon the assessee is to show that it actually written off the debts in the books of account. 35. We have heard the rival submissions and perused the orders of lower authorities and the paper book submitted by the assessee. We find that the contention of the Ld. Counsel for the assessee that post amendment to Sec. 36(1)(vii) is partly correct. However, Sec. 36(1)(vii) has to be r.w.s 36(2). Section 36(2)(i) provides that " no such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money lending which is carried on by the assessee". Reading both these sections together, we find that the assessee has not brought any material evidence on record to substantiate its claim in the light of the provisions of Sec. 36(2)(i). In the interest of justice and fair play, we deem it fit to restore this issue....
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....ose of business and hence allowable u/s. 36 of the Act. 38. After considering the submissions of the assessee, the Ld. CIT(A) observed that the commission and brokerage during the year has increased by 376.61% whereas income from operations has increased only by 130.60%. The Ld. CIT(A) further observed that though the percentage of commission and brokerage vis-à-vis operational income or business disbursement comes to below 1% but when the expenditure by itself is compared the same is increased from 0.24% to 0.64% which means the expenditure of commission and brokerage during the year has increased by over 150% on the disbursement. The Ld. CIT(A) further analysed the details submitted by the assessee and observed that the assessee has failed to furnish the confirmations in respect of payments of commission at Rs. 4,41,56,021/-. The Ld. CIT(A) further found that in respect of parties from whom confirmations have been received, there is a difference of Rs. 38,88,596/- and in respect of Rs. 65,93,011/-, there are no PA Nos. of the parties. The Ld. CIT(A) went on to make the above disallowances from the total payment of commission and brokerage resulting into an ....
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....easonable opportunity of being heard to the assessee . The assessee is directed to establish the identity of the payees with necessary details/evidences. The AO is further directed to verify the TDS details wherever it has been made. Ground No. 6 is allowed for statistical purposes. 42. Ground No. 7 relates to the initiation of penalty proceedings u/s. 271(1)(c) with respect to the enhancement of income as contested by ground No. 6. We find that this ground is pre-mature and deserves no adjudication accordingly it is dismissed. 43. In the result, the appeal filed by the assessee in ITA No. 2846/M/2007 is partly allowed for statistical purposes. ITA No. 405/Mum/2008- A.Y. 2004-05 44. Ground No. 1 relates to the decision of Ld. CIT(A) to confirm the findings of AO for disallowing depreciation on leased assets to the tune of Rs. 7,47,77,658/-. This ground is identical with the issue raised in ground No. 1 in ITA No. 2846/M/07 for A.Y. 2003-04 at paras 3 to 11. While deciding this issue in ITA No. 2846/M/07, we have taken the decision of Special Bench in the case of Indus Ind Vs ACIT reported in 135 ITD 165 wherein on identical facts, the Special Bench of ITAT, Mumbai. Resp....
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.... accounts, it is mentioned that repairs and maintenance includes amount of Rs.92.12 lakhs incurred towards furnishing of new corporate office premises taken on lease. The AO sought explanation from the assessee asking it why amount of Rs. 92.12 lakhs not capitalized. In response, the assessee furnished the details of expenses on corporate office. The assessee explained that the expenditure was incurred for the purpose of renovation of newly leased corporate office. The renovation was completed by the end of December 2003 and it was occupied from January 1, 2004. The assessee further explained that the expenditure has been incurred for renovation and does not contain any capital cost therein. The cost of furniture and fixtures alongwith capital electrical has been duly capitalized. Only those expenses which are purely in the nature of renovation has been considered as revenue. However, rejecting the submissions made by the assessee, the AO concluded that the benefit derived out of these expenses are enduring in nature and these expenses are not merely current repairs. They have been incurred for the purpose of getting the premises ready for occupation. Further, a perusal of legal....
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....ey have been incurred, we do not find any reason to interfere with the findings of lower authorities. The expenses are in the nature of capital and as the AO has already allowed deprecation, no further interference is called for. Ground No. 3 & 4 are accordingly dismissed. 57. Ground No. 5 relates to the depreciation claimed on UPS at the rate of 60% but allowed by the lower authorities at the rate of 15% treating UPS as electrical installation and not as an integral part of the computer. This ground is identical with the issue raised in ground No. 2 in ITA No. 2846/M/07 for A.Y. 2003-04 at paras 12 to 17. While deciding this issue in ITA No. 2846/M/07, we restore this issue back to the files of the AO. This ground is allowed for statistical purposes. 58. Ground No. 6 relates to disallowance of software expenses to the tune of Rs. 4,29,875/- as capital expenditure. This ground is identical with the issued raised in ground No. 3 in ITA No. 2846/M/07 for A.Y. 2003-04 at paras 18 to 23. While deciding this issue in ITA No. 2846/M/07 we restore this issue back to the files of the AO with a direction that each and every item should be verified with the business of the assessee in ....