TaxTMI 
TaxTMI 
2016 (8) TMI 1202
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.... 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 section 32 of the Income-tax Act, 1961 ('hereinafter referred to as Act....
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.... 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 disallowed since the vehicles were registered in the name of the respective lessees and also the lease transaction was in effect a finance transac....
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...., 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 lessor to formalize the transaction as a lease transaction. 4.4. The AO also relied on the decision in the case of Damodar Valley Corporation Vs. State of Bihar 12 STC 102 SC. The AO pointed out t....
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....efore, 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 Supreme Court in the case of McDowell and pointed out that the probable cause for making this financing arrangement in the guise of lease was to take advantage of tax benefit available through the depreciation route. He, accordingly, held that it was not a leasing trans....
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....mining 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 vehicles were directly delivered to the lessee and the lessee bore the insurance and held the warranty and rejoined the right to use to the exclusion of the lessor; 4. repairs 'were to be carried out at the sole expense of" the lessee; 5. the sale invoice was raised in the name of the lessor only fo....
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....n 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 recovery in lease rentals), Aggrieved with the same, the assessee preferred appeal before the CIT(A) and consequently before the Tribunal and the Tribunal restored back the matter to file of the AO for fresh adjudication. In this regard, vide notice u/s 142(1) of the Act, the assessee, was asked to furnish necessary documents/details to substantiate its claim. III response to the same assessee ....
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....cer 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 Clause VI: - Lessee agrees that the Products/Vehicles will be used by Lessee solely in the conduct oj its business and in a manner complying with all applicable laws, rules and regulations. - Lessee shall not assign, mortgage, sublet or hypothecate any Products/Vehicles or the interest of lessee hereunder, nor shall lessee remove any products/vehicles location specified on the applicable schedule without the prior written consent of the lessor. ": - Lessee will keep the Products/Vehicles free and clear of all....
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....y 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 records and allow (he claim of depreciation on leased vehicles on account of the following: The terms of agreement entered into between GEMFSL and its Lessees are similar 10 agreement between ICDS and its Lessees; The depreciation on leased vehicles has not been claimed by the Lessees as evidenced by the declaration enclosed as Annexure D; On perusal of the order passed by the ITAT, it has been observed that the ITA T has remanded back the matter to check (I) Covenants of the agreement; and (2) Claim of depreciation by lessees. The issue of depreciation on leased vehicles of the assessee was principally accepted by....
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....ny 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 and sell the same Para 22, clause (4) Lessee shall not assign, mortgage, sublet or hypothecate any products/vehicles, or the interest of lessee hereunder without prior consent of lessor. Lessee will keep products/vehicles free and clear of all liens and encumbrances other than those which result from acts of lessor Clause VI Further, the assessee has submitted sample copies of declaration from the Lessees where they have confirmed that no depreciation has been claimed by them. I have considered the submission and plea of the assessee and found that during the year under consideration, the assessee company has claimed depreciation on vehicles given on lease and on examination of submission filed by the assessee, ....
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....duction 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 the ITAT in assessee's own case for AY 2000-01, 200203 and 2003-04. He further pointed out that order for AY 2003-04 has been confirmed by the High Court. 10. Having heard both the parties, we find that this issue has been considered by the Tribunal vide ITA nos. 3476/Del/07 for AY 2000-01, wherein the Tribunal vide its order dated 21.6.2013 dismissed the revenue's appeal on this issue observing in paras 16.1 to 17.1 as under: "16.1 We have considered the submissions of both the parties and have perused the record of the case. 17. The assessee had not recognized the interest income on sticky loans keeping in view the mandatory guidelines of RBI in regard to NBFC. Under the mercantile system of accounting an income accrues when there is reason....
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....ent 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 submissions of both the parties and considered the material available on record. Facts are not disputed. Hon'ble Supreme Court in the case of Southern Technologies (supra) has held as under: "The Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998, are only disclosure norms: they have nothing to do with the computation of total taxable income under the Income-tax Act, 1961, or with accounting treatment. The Directions only lay down the manner of presentation of NPA (non-performing assets) in the balance sheet of a non- banking financial company. The object of the Directions that non-banking financial companies have to accept the concept of "income" evolved by the Reserve Bank of India after deducting provision against non-performing assets is only disclosur....
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....ere 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 file of AO and assessee be directed to file details. 17. We have considered the submissions of both the parties and have perused the record of the case. Hon'ble Supreme Court in the case of TRF Ltd. has clearly observed that it is not necessary for the assessee to establish that the debt income had become irrecoverable in the accounts of the assessee. In that case the issue under consideration was whether the bad debt had actually been written off or not and in that context Hon'ble Supreme Court delivered the judgment. But that does not imply that the assessee can claim the bad debt even without complying with the provisions of section 36(2), which, inter alia, clearly mandates that no such deduction shall be allowed unless such or part thereof has been taken into account in computing the income of the assessee of the....
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....T(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 case and in law, the Hon'ble CIT(A) erred in law by confirming the disallowance of depreciation on leased vehicles amounting to Rs. 15,16,13,983/- by holding that the Appellant is not the beneficial owner of leased vehicles. 3 On the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in confirming disallowance of the Appellant's claim for bad debts of Rs. 1,41,77,018/- written off in the books of account. 4 On the facts and in the circumstances of the case and in law, Hon'ble CIT(A) has erred in confirming levy of interest under section 234B of the Act on the Appellant." 26. Ground no. 1 is general in nature and requires no adjudication. 27. 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 depreci....
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.... 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. Ground no. 4: The assessee had claimed loss on sale of loan portfolio of Rs. 29,03,32,647/-. The AO, treating this as a capital loss, required the assessee to explain why this loss should be allowed. The assessee submitted that the loans sold were part of its current asset and the loss on sale of loan portfolio was a trading loss allowable as revenue loss. The AO did not accept the assessee's contention observing that section 37 provides that any expenditure, not being expenditure of capital nature, laid out or expended wholly and exclusively for the purposes of business, is allowable as deduction in computation of income chargeable under the head profits and gains of business or profession, incurred in relation to the business, were allowable. However, the loss on sale portfolio was clearly a capital loss and, therefore not allowable. He disallowed the assessee's claim. 35.1. Before ld. CIT(A) the assessee submitted that ....
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....sel 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 and there is no dispute on that count. Further, if the loan has been repossessed then also it is allowable which is not disputed. He submitted that as regards delinquent asset this was a commercially prudent policy adopted to mitigate the business loss. 37. Ld. CIT(DR) submitted that the conditions laid down u/s 36(2)(i) are not fulfilled. He referred to section 36(2)(i) and pointed out that the said section, inter alia, covers money lent in the ordinary course of the business of banking or money lending which is carried on by the assessee. However, in the present case the assessee is NBFC, which is different from money lending. 37.1. Ld. CIT(DR) submitted that the ordinary course of the business, as contemplated u/s 36(2), does not include right to receive money, which has been sold in the present case. It is capital in nature. He submitted that in the present case assessee was financing indirectly the asset. The loss incurred by assessee is not i....
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....es 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 III of the MOA lists down the main and incidental/ancillary Objects for which the Appellant Company has been formed. The following relevant Clauses of the MOA were also reproduced for Ld. AO's ready reference:- "1. To carry on and undertake the business as financers to provide finance for purchase of all types of consumer durables, office plant and equipment, vehicles (including commercial vehicles, automobiles, four wheelers, two wheelers). chattels, hospital equipments, home appliances, industrial plant and equipment, machinery by way of (but not limited to) lease and hire purchase finance. 2. ...... 3. ....... 4. ......... 5. .......... 6. To negotiate loans, to draw, accept, endorse, discount buy, sell and deal in bill of exchange, promissory notes, bonds, debentures, coupons and other instruments and securities 38.1. Therefore, this activity was in line with the main objects of assessee also. 38.2. Now coming to the submissions of ld. CIT(....
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....sallowances! interest levied in the assessment order dated December 23, 2008 under section 143(3) of the Act, by the Deputy Commissioner of Income Tax, Circle 12(1), New Delhi ('Assessing Officer'). 2 On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the disallowance towards depreciation of Rs. 5,31,54,609 claimed by the Appellant u/s 32 of the Act on vehicles leased out to customers, by holding that the Appellant is not the beneficial owner of these vehicles. 3 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. 7,15,09,081 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 in nature of capital loss. 4 On the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in not directing the Assessing Officer to process the revised Return of Income filed by the Appellant for captioned year on March 20, 2007 by holding that the Appellant did not press this ground before his office. 5 On the facts and in the circum....
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....I, New Delhi's order dated 31.10.2011 in appeal no. TR-579/08-09, relating to AY 2005-06. 50. Grounds of appeal raised are as under: "1. Whether Ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the addition of Rs. 7,61,11,049/- on account of interest on sticky loans. 2. Whether Ld. CIT(A) was correct on facts and circumstances of the case and in law in allowing the depreciation of Rs. 6,12,373/- not capitalized in the tax block, claimed by assessee in revised computation. 3. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing." 51. Ground no. 1: The issue relating to interest on sticky loans has been dealt by us in detail while adjudicating assessee's appeal for AY 2001-02. For the detailed reasons given by us in AY 2001-02, we uphold the action of ld. CIT(A) in deleting the addition made on account of interest on sticky loans. Ground is dismissed. 52. Ground no. 2: Brief facts apropos ground no. 2 are that during the course of assessment, the assessee vide letter dated 21.12.2008 filed a revised computation of income, inter alia, claiming depreciation of Rs. 6,12,373/- not capi....