TaxTMI 
TaxTMI 
2016 (3) TMI 870
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....sts and/or have been satisfied. 2. For that the order passed by the Assessing Officer was not in any way erroneous or prejudicial to the interest of revenue and as such the 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. 3. For that the order of assessment having been merged in the order of the Commissioner of Income Tax (Appeals) as far as the disallowance on account of air-crafts related expenses are concerned which are based on alleged non business use, the Commissioner of Income Tax could not exercise any power under section 263 of the Act and direct the A.O. to modify the order of assessment on any similar issue as depreciation. 4. For that no new material or evidence has been brought on record by the Commissioner of Income Tax to hold contrary to what has been held in the assessment by the A.O. in respect of liability of lease rental paid for taking the cars on hire and as the order of the A.O. was perfectly in accordance with law, the same could not be revised under section 263 o....
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....s and circumstances of the case. 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 te....
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....hartered 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 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 nonbusiness 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 appel....
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.... 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 depreciation on aircrafts flows from the maintenance expenses of aircrafts being used for ....
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....ecided 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....
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.... 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. 4. The next issue to be decided in this appeal is as to whether the Learned CIT is justified in invoking the provisions of section 263 of the Act for disallowance of lease rentals on principal repayment of vehicle loan in the facts and circumstances of the case. 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 l....
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....ein 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 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....
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....t 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, 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 proceedi....
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.... 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 th....
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.... 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 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 th....