TaxTMI 
TaxTMI 
2016 (8) TMI 1202
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....eturn of income declaring a total income of Rs. 16,92,20,842/-, which was revised to Rs. 16,48,70,741/- as per the submissions of ld. counsel. The assessment was completed at a total income of Rs. 34,64,81,251/-, after making, inter alia, following additions/disallowances: Depreciation on leased assets disallowed Rs. 6967067 Interest on sticky loans not provided Rs. 20706434 Provision for doubtful assets Rs. 14358118 Bad debts disallowed Rs. 134623050 3. The assessee preferred appeal before the ld. CIT(A), who partly allowed the assessee's appeal. Being aggrieved, the assessee is in appeal before us and has taken following grounds of appeal. "1. That on the facts and in circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals)-XV, New Delhi [hereinafter referred to as 'CIT(A)'J has erred in confirming the action of the Assessing Officer [hereinafter referred to as 'A. 0'] in holding that the transactions relating to lease of vehicles are in fact financing transactions and thereby sustaining a disallowance of depreciation on leased vehicles (net of principal recovery) of Rs. 69,67,067/- claimed under sectio....
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....e case and in law, the CIT(A) has erred in sustaining withdrawal of interest u/s 244A of the Act amounting to Rs. 84,95,766/-. 8. That on the facts and in the circumstances of the case and in law, the CIT(A) has erred in sustaining levy of interest u/s 234C of the Act without appreciating the fact that there was no shortfall in the payment of advance tax instalments vis- a- vis the returned income and consequently no interest could be levied under Section 234C of the Act. 9. That on the facts and in the circumstances of the case, the CIT(A) has erred in sustaining levy of interest u/s 2348 of the Act, as computed in the assessment order". 4. Brief facts apropos ground no. 1 are that in course of assessment proceedings, the assessee company was asked by AO to furnish the details of vehicles leased out by the assessee company, on which depreciation was claimed. The assessee company submitted invoices, lease agreement and registration certificate for leased vehicles along with legal submissions of allowability of claim of depreciation to the assessee company. The AO required the assessee to explain as to why the depreciation on the leased vehicles should not be di....
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....nsideration to the dealer. In order to enable the company to enter into a hire purchase agreement with the customer, he had issued a sale letter in favour of the company. The transaction was, accordingly, formalized as a as a hire purchase transaction which attracted sales-tax on account of a deeming clause in the relevant sales tax including transfer of goods on hire purchase in the definition of sale. The Hon'ble Supreme Court, on the basis of surrounding circumstances held that in substance it was a financing transaction i.e. granting of loan by the company to the customers on the hypothecation of vehicles with the company. Since this category of transaction was specifically excluded from the definition of sale, the Supreme Court discharged the company from the liability of sales-tax. 4.3. Invoking the same analogy to the facts of the present case, the AO pointed out that in the present case also there was no real sale to the lessor. Only paper work was created by issuing invoice to the lessor. It was just like a sale letter issued by the customer to the finance company in the case of Sundaram Finance Ltd. (supra) and this sale invoice in effect was issued to enable the lesso....
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.... vis a vis the facts obtaining in assessee's case. 4.10. He pointed out that in the present case only constructive delivery was given to assessee and the assets were in possession of the lessee and were directly delivered to the lessee. He, therefore, disallowed the assessee's claim of depreciation amounting to Rs. 5,11,67,660/-. However, allowed principal recovery of Rs. 4,42,00,593/- and, therefore, determined the addition of Rs. 69,67,067/-. 4.11. Before ld. CIT(A) the assessee had advanced detailed submissions. However, ld. CIT(A) upheld the AO's finding that it was a financing lease for the following reasons: (a) The vehicle was registered in the name of the user and, therefore, the presumption was that the vehicle owner was the user. From this he concluded that it was a financing arrangement. (b) Motor Vehicle Act defines owner in the case of a lessee as the person who is in possession of the vehicle under the lease agreement. He pointed out that the assessee was not having possession of the vehicle ever. The assessee was simply financing the vehicles and charging interest on the loan amount. 4.12. Ld. CIT(A) referred to the decision of Hon'ble Supr....
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.... a case of operating lease or finance lease. 7. We have considered the submissions of both the parties and have perused the record of the case. The main plank of ld. Sr. counsel's submission is that in AY 2000-01 and 2002-03, this issue was remanded to AO by Tribunal for examining the terms of agreement as obtaining in the case of ICDS Ltd. Vs. CIT 350 ITR 527 and after examining both the agreements the AO allowed the claim of assessee. The Tribunal while deciding this issue for AY 2000-01 and 2002-03, inter alia, observed as under: "6. Brief' facts apropos ground no. 2 are that in the course of assessment proceedings, the assessee company was asked/0 furnish the details of vehicles leased out by the assessee company on which depreciation was claimed. The assessee submitted sample invoice, lease agreement and registration certificate for leased cars along with legal submissions of allowability of claim of depreciation t0 the assessee company. The AO denied the assessee's claim for the following reasons: 1. the lease transaction in effect was a finance transaction; 2. vehicles were registered in the name of respective lessees: 3. the ve....
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....eciation which finding is not recorded by AO in the present case. Therefore, it is necessary that the terms of lease agreement be examined afresh in the light of decision of Hon'ble Supreme Court and also a specific finding is recorded by AO regarding claim of depreciation by lessees. We, therefore, restore this issue to the file of AO to decide the same denovo in view of the decision of Hon'ble Supreme Court in the case of ICDS Ltd. 8.3 In the result, this ground is allowed for statistical purposes. 7.1. The assessee had also filed MA being MA 81 &82/Del/2013 pointing out therein that the Tribunal was not justified in restoring the matter to the file of AO which was rejected by the Tribunal vie its order dated 13.1.2014. Accordingly, in consequence to Tribunal's order the AO has passed the order for both the assessment years in AY 2000-01 and 2002-03. In AY 2000-01 the AO u/s 143(3)/254 dated 31.3.2015 has observed as under: "5. Depreciation on leased vehicles: In the final assessment order dated 03/03/2003 for the captioned A Y, a disallowance of Rs. 89,94,734/- was made on account of Depreciation on leased vehicles (net off principal recover....
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....he Lease Commencement Date subject to payment of lease rentals to the Lessor. Clause V and VII of the Agreement - The Lessor has the right to inspect the vehicles as and when it may be deemed as necessary and as and when required by the Lessor. - The Lessor has the right to enter upon the premises for the purpose of confirming is existence, condition and propel' maintenance. - Lessee is obligated to provide, 0/1 annual basis, a certificate, signed by an authorised officer of the lessee detailing depreciation eligibility of the vehicles, working condition of the vehicles and whether the vehicles ore in physical possession and under control of the lessee Your' good self may kindly note that only the owner of the vehicles could inspect the same at any point of time. Further, given the conduct of the parties and the reporting requirements of the lessee, it can be inferred that Lessor is the owner a/the vehicles and has leased them to lessee for limited purpose for use only. Accordingly, it may be seen that the Lessor i.e. assessee is exercising control over the assets during the lease period. Clause VI and XIII of the Agreement ....
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....ng the Lessor, is the owner of the vehicles and thus, satisfies the test of ownership laid down in section 32 of the Act. It is submitted that the assessee has given assets on lease in the normal course of its business and thus, being the owner of the assets, the assessee is entitled to claim depreciation on such leased vehicles. In view of the above, the case of the assessee is squarely covered by the decision of Hon'ble Supreme Court in the case of ICDS (supra) as is evident front the similarity in terms of the decision of the Supreme Court and the facts of the assessee as briefly referred herein as well. (Refer also Attachment 01 Annexure B) Remand direction (2) to be examined - Claim of depreciation by the Lessee: 1.3 It is submitted that even in the even! that the Lessee might have wrongly claimed depreciation on leased assets, this should not prejudice the right of the owner i.e. the Lessor to claim depreciation. Without prejudice, we are providing sample copy of declarations from Lessee not having claimed depreciations. Our Request In view of the aforesaid submission, the assessee requests your office 10 take the submission on....
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....as directed Clause II Ownership Lessor was the sole and exclusive owner of the vehicle at all points of time Para 22, clause (4) The sole ownership of vehicles, for all intent and purposes vested in the Lessor at all times during the term of the agreement Clause XIX Default Lessor empowered to repossess the vehicle where lessee committed a default (and not merely recover money from the customer) Para 22, clause (18) Lessor empowered to repossess the vehicle, where lessee committed a default, in addition to liquidated damages Clause XII Inspection of vehicles Lessor had the right of inspection of the vehicle at all times Para 22, clause (9) Lessor allowed to inspect any vehicle as and when required by the Lessor Clause V Termination/Expiration of the lease agreement At the conclusion of lease period, the lessee was obliged to return the vehicle to the Lessor in good working condition Para 22, clause (19) Lessee to return the vehicles to lessor at the expiration or termination of agreement in a proper working condition Clause XI Assignment Lessee shall have no right, title or interest to mortgage, hypothecate ....
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.... accounts on accrual basis and according to the double entry system of accounting. He pointed out that in the audited accounts prepared as per Companies Act, 1956, the income on sticky loans was provided and recognized as income. However, subsequently, the entry was reversed on the close of accounting year and income on the claimed sticky loans was not recognized. He concluded that mercantile system was not being followed as far as interest income was concerned. Following his order for AY 1998-99, upheld by ld. CIT(A), the AO made addition of Rs. 2,07,06,434/-. 8.1. Ld. CIT(A) relying on the decision of Hon'ble Bombay High Court in the case of Banque Nationale De Paris (1999) 237 ITR 518, held that assessee could not be allowed the claim of deduction on account of interest on sticky loans. He pointed out that so long as the loan was still patent and the assessee was following the mercantile system of accounting, the assessee must submit to tax on account of interest accrued/due on sticky loans. He pointed out that the loans had not become bad and assessee still hoped to recover it. 9. Ld. counsel for the assessee pointed out that this issue has been settled by the decision of....
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...." 17.1 Respectfully following the decision of Hon'ble Supreme Court we confirm the order of Id. CIT(A). 10.1. Respectfully following the order of the Tribunal in assessee's own case for AY 2000-01, we allow the assessee's claim. Ground is allowed. 11. Ground no. 3: Brief facts are that the assessee had made provision for doubtful debts of Rs. 1,43,58,118/-. The assessee's explanation was that it was a non-banking finance company registered with RBI and was, therefore, bound by the provisions of NBFC Prudential Norms (Reserve Bank) Directions, 1998, issued by RBI. Accordingly, assessee had made provision for doubtful debts at the specified percentage based on the classification of such assets viz. sub-standard, doubtful and loss assets. AO treating it as a contingent liability disallowed the assessee's claim. 11.1. Ld. CIT(A) upheld the AO's action further observing that the provision for doubtful debts was not a crystallized expense. 12. Ld. counsel for the assessee fairly conceded that this issue is covered against the assessee by the decision of Hon'ble Supreme Court in the case of Southern Technologies Vs. JCIT 320 ITR 577. 13. We have considered the ....
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....uent to turning the amounts bad. The assessee also failed to furnish the nature of the debt entries. He, accordingly, disallowed the assessee's claim of Rs. 13,46,23,050/-. 14.2. Ld. CIT(A) upheld the AO's claim. 15. Ld. counsel submitted that the loans have been written off is not disputed by the department. He relied on the decision of Hon'ble Supreme Court in the case of TRF Ltd. Vs. CIT 323 ITR 397, wherein the Hon'ble Apex Court has held as under: "The position of law is well settled. After April 9, 1989 it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the debt is written off as irrecoverable in the accounts of the assessee" 16. Ld. CIT(DR) submitted that the ingredients laid down u/s 36(2) have not been examined by AO as details were not furnished. In this regard he referred to page 9 of assessment order, wherein the AO has specifically noted that details were not furnished by assessee. Ld. CIT(DR) further submitted that facts are not clear as to whether it was a trading debt or not and whether taken as income in earlier year. He, therefore, submitted that the matter should be restored to the....
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....as at all was granted to assessee or not. We, therefore, restore this issue also to the file of AO for verification whether any refund was granted to assessee or not. 22. Ground nos. 8 & 9: Charging of interest u/s 234B and 234C are consequential in nature. The AO shall recalculate the charging of interest under the aforesaid sections, if any, while giving effect to appellate order. 23. In the result, ITA no. 1357/Del/2005 is partly allowed for statistical purposes. ITA no. 4235/Del/2011 (Assessee's appeal for AY 2003-04): 24. This appeal, preferred by the assessee, arises out of CIT(A)-IX, New Delhi's order dated 29.6.2011in appeal no. TR-10/10-11, relating to AY 2003-04. 25. The assessee has raised following grounds of appeal: "1. On the facts and circumstances of the case and in law, the order passed by the Hon'ble CIT(A) is erroneous and bad in law to the extent the same confirms the additional disallowances/interest levied in the assessment order dated March 24, 2006 passed under section 143(3) of the Act, by the Additional Commissioner of Income Tax, Range 12, New Delhi ('Assessing Officer'). 2 On the facts and circumstances of the....
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....on'ble CIT(A) erred in rejecting claim of Rs. 57,38,100/- & Rs. 1 ,55,26,824/- towards interest on sticky loans for 1998-99 and 2001-02 respectively on loans and advances written off during the year appeal. 4 On the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in confirming the disallowance of loss amounting to Rs. 29,03,32,647/- incurred by the Appellant on sale of delinquent loan portfolio representing money lent in the ordinary course of business, by alleging the same to be a capital loss. 5. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in confirming levy of interest under section 234D of the Act on the appellant." 32. Ground no. 1 is general in nature and requires no adjudication. 33. Ground no. 2: For the reasons given by us while adjudicating assessee's appeal for AY 2001-02, we allow the claim of the assessee and delete the disallowance of depreciation on leased vehicles made by the AO. 34. Ground no. 3: At the time of hearing ld. counsel did not press this ground as no disallowance pertain to current year. Hence ground no. 3 stands rejected being not pressed. 35.....
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.... accordingly, allowable u/s 36(1)(vii) of the Act read with section 36(2) of the Act. The assessee pointed out that all the conditions in respect of 36(1)(vii) read with section 36(2) are fulfilled. 35.3. Ld. CIT(A) did not accept the assessee's contention regarding allowability under the provisions of section 36(1)(vii) read with section 36(2), inter alia, observing that the amount of deduction claimed by the assessee was never credited to the P&L A/c in any of the earlier years. He further observed that assessee was not in the business of buying and selling of loan portfolio and, accordingly, the loss could not be said to have been incurred in ordinary course of business of the assessee. He, therefore, upheld the AO's stand that it was a capital loss. 36. Ld. Sr. counsel submitted that admittedly loans were shown under the head current assets and were not capital assets. He pointed out that the nature of asset is relevant. 36.1. Ld. counsel relied on the decision of ITAT in the case of DCIT Vs. Maruti Countrywide Auto Financial Services Pvt. Ltd. ITA no. 5894/Del/2013. Ld. counsel submitted that if there is a direct loss on sale of loan portfolio, then it is allowable an....
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....efore, investing in the stressed assets space. The government has also eased norms in this regard. Thus, selling of delinquent loan portfolio was purely a commercial prudent decision taken by assessee in line with the prevailing business practice in order to minimize its business loss. This was a case of outright sale without recourse obligations. The assessee was NBFC and, therefore, the financing was done in ordinary course of business and the loans under current assets acquired more or less the same character as of stock-in-trade and, accordingly, constituted trade debts/receivables. It is not disputed that amount received on sale of delinquent assets had been adjusted against the outstanding balances and only net amount had been claimed as deduction. Thus, receipts also got accounted for in profit & loss account. Therefore, it was primarily a trading loss arising during the ordinary course of assessee's business. Further, we find that different clauses of memorandum of association reads as under:- "6.4 It was submitted that the aforesaid activity of the Appellant is in line with the objects stated in its Memorandum of Association ("MOA"). It was explained that Clause I....
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....d no. 5: Ld. counsel for the assessee pointed out that no refund was given to assessee and, therefore, there was no question of any interest being charged u/s 234D from assessee. On identical facts, in AY 2001-02 we have restored this issue to the file of AO for verification. For the very same reasons herein also we restore this issue to the file of AO to verify whether any refund was granted to assessee or not and if no refund was granted to assessee then no interest can be charged u/s 234D. Ground is allowed for statistical purposes. 40. In the result, ITA no. 4206/Del/2011 stands partly allowed. ITA no. 13/Del/2012 ( Assessee's appeal for AY 2005-06): 41. This appeal, preferred by the assessee, arises out of CIT(A)-VIII, New Delhi's order dated 31.10.2011 in appeal no. TR-579/08-09, relating to AY 2005-06. 42. Grounds of appeal raised are as under: "On the facts and circumstances of the case and in law, the order passed by the Hon'ble CIT(A) is erroneous and bad in law to the extent the same confirms the additions! disallowances! interest levied in the assessment order dated December 23, 2008 under section 143(3) of the Act, by the Deputy Commissioner of....
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.... is accordingly, dismissed". 46.1. Ld. counsel submitted that this ground was actually pressed before ld. CIT(A) and, therefore, the matter may be restored back to his file for adjudication. 47. Having heard both the parties, keeping in view the submissions advanced by ld. Sr. counsel for the assessee, we restore this matter to the file of ld. CIT(A) for adjudicating the same. Ground is allowed for statistical purposes. 48. Ground no. 5: Ld. counsel for the assessee pointed out that no refund was given to assessee and, therefore, there was no question of any interest being charged u/s 234D from assessee. On identical facts, in AY 2001-02 we have restored this issue to the file of AO for verification. For the very same reasons herein also we restore this issue to the file of AO to verify whether any refund was granted to assessee or not and if no refund was granted to assessee then no interest can be charged u/s 234D. Ground is allowed for statistical purposes. ITA no. 5854/Del/2012 (Revenue's appeal for AY 2005-06): 49. This appeal, preferred by the revenue, arises out of CIT(A)-VIII, New Delhi's order dated 31.10.2011 in appeal no. TR-579/08-09, relating to AY 2005-....