"B" Û
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "D", MUMBAI
BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER
AND SHRI VIVEK VARMA, JUDICIAL MEMBER
. : 1839/ 1839//2004, [[ 1994-95
ITA No. :1839/Mum/2004 AY 1994-95
. : 3369/ 3369//2004, [[ 1995-96, 1996-97
ITA No. :3369/Mum/2004 AY 1995-96
. : 3370/ 3370//2004, [[ 1996-97
ITA No. :3370/Mum/2004 AY 1996-97
. : 1951, 3922, 3923/
1951, 3922, 3923//2006,
[[ 1994-95, 1995-96, 1996-97
ITAs No. :1951, 3922 & 3923/Mum/2006 AYs 94-95, 95-96 & 96-97
Industrial Development Bank of Vs DCIT Range -3(1),
India, 6th Floor, Room No. 623,
Taxation Cell, 3rd Floor, IDBI Tower, Aayakar Bhavan,
WTC Complex, Cuffe Parade, M. K. Road,
Mumbai -400 005 Mumbai -400 020
.:PAN: AAACI 1105 R
(Appellant) ×(Respondent)
Appellant by : Shri Arvind Sonde
Shri Satish B Mody
Respondent by : Shri Preetam Singh
/Date of Hearing : 16-10-2014
/Date of Pronouncement 29.10.2014
ORDER
Û. .
^ [, Û.
PER VIVEK VARMA, J.M.:
The instant appeals on quantum, are filed against the orders of
CIT(A) XII, Mumbai, dated 07.01.2014, 06.02.2014 & 11.02,2004 for
AYs 1994-95, 1995-96 & 1996-97 respectively.
2. Since all the three appeals have one common ground of appeal,
we, for the sake of convenience and brevity are disposing off the
appeals through common and consolidated order. We are taking ITA
2 Industrial Development Bank of India
ITA No. 1839/Mum/2004
ITAs No. 3369 to 3370/Mum/2004
& Another three Group appeals
No. 1839/Mum/2004, pertaining to assessment year 1994-95 as the
lead year.
ITA No. 1839/Mum/2004 : Asst. year 1994-95 :
3. The following grounds have been taken:
"Aggrieved by the Order u/s 250 of the Income Tax Act, 1961 dated 7.1.2004
passed by the Commissioner of Income Tax (Appeals) XII, Mumbai
hereinafter referred to as the CIT(A)] for the assessment year 1994-95, the
appellant begs to file this appeal and raise the following grounds of appeal
which are independent of and without prejudice to each other.
1. The learned CIT(A) erred in confirming the disallowance of depreciation
amounting to Rs. 36,42,67,385/-, claimed by the appellant under section
32 of the Act in respect of assets given on lease by the appellant by
holding them as pure finance transactions. The Hon'ble Tribunal may
hold that the appellant is entitled to depreciation as claimed, u/s 32 of
the Act in respect of assets given on lease by the appellant.
2. The learned CIT(A) erred in holding that interest amounting to Rs.
14,03,63,220/- on refund for AY 1992-93 received under section 244A of
the Act at time of summary assessment u/s 143(1), was liable to tax in
AY 1994-95 on receipt basis, although this refund has been withdrawn
by the AO at the time of regular assessment u/s 143(3). The Hon'ble
Tribunal may hold that the amount of Rs. 14,03,63,220/- arising u/s
244A under summary assessment, is not liable to tax in the hands of the
appellant.
The appellant craves leave to add to, amend, alter, modify, delete and/or
substitute all or any of the grounds of appeal till final disposal of the
appeal".
4. At the time of hearing, the AR submitted that ground no. 2 is
not pressed. Hence, ground no. 2 is rejected as not pressed.
5. Ground no. 1 pertains to claim of depreciation in respect of
assets given on lease.
6. The assessee Industrial Development Bank of India (IDBI) is a
government owned financial institution, engaged in providing long
term lease, refinance and lease. The scope of this line of business of
the assessee is,
"1. Ownership of equipment vests with IDBI.
2. The lease period has been specified (generally 5 years)
3. The commencement and termination of leases is
specified. The assets have been identified and both the
3 Industrial Development Bank of India
ITA No. 1839/Mum/2004
ITAs No. 3369 to 3370/Mum/2004
& Another three Group appeals
lessor and lessee are clear as to which particular
equipment belongs to IDBI.
4. The agreements provide for return of equipment on the
expiry of the lease.
5. The agreements provide that lessee has no right to
transfer or assign or mortgage the asset in favour of any
other party.
6. The rental structure is uniform and has been laid down
in the respective agreements.
7. The agreements provide for insurance of the assets".
7. The AO, while examining the books and scope of business of the
assessee, identified that, transaction conducted with the following
parties were "loans" and not "lease".
a) Gujarat Electricity Board
b) Empee Distilliers Ltd.
c) Billary Steels & Alloy Ltd.
d) Kedia Group
e) REPL Engineering Ltd
f) Patheja Bros Forging & Stampings Ltd
g) Padma Alloys Castings Ltd.
8. At the time of hearing, the AR submitted that the issue involves
two types of indulgence, i.e. transactions held to be loan, after
consideration and transactions held to be loan, without any specific
reason.
9. The AR provided the break up as follows:
Cases classified as Finance Transaction
"Sr. Name of Lessee
No.
1 Gujarat Electricity Board (Asset pertaining to transaction in
earlier financial year)
2 Gujarat Electricity Board (Transaction entered during the year)
3 Empee Distilleries Ltd.
4 Bellary Steels & Alloys Ltd.
Cases not classified as Finance Transaction
Sr. Name of Lessee
No.
1 Kedia Group Companies
2 REPL Engineering Ltd.
4 Industrial Development Bank of India
ITA No. 1839/Mum/2004
ITAs No. 3369 to 3370/Mum/2004
& Another three Group appeals
3 Patheja Bros. Forging & Stampings Ltd.
4 Padma Alloys Castings Ltd.
10. The AR submitted that in so far as items 1 to 4 in the category
"cases classified as Finance Transactions" are concerned, the issue of
depreciation is squarely covered by the various decisions of the
Mumbai ITAT and by other decisions of Hon'ble High Courts as
follows:
S.No. Particulars Court Citation
1 ICICI Ltd. vs JCIT ITAT, Mumbai [2014] ITA No. 1881 &
3708/M/2000; ITA No.
3535/M/2004 and ITA
3827/M/2005
2 ICICI Bank Ltd. vs JCIT ITAT, [2014] ITA No. 3643,
Mumbai 3644/M/2001
3 M/s Larsen & Toubro ITAT, [2013] ITA No. 2200/M/2000
Ltd. vs. JCIT Mumbai and ITA 2890/M/2001
4 Development Credit Bank ITAT, Mumbai [2013] 40 taxman.com 532
vs DCIT
5 SICOM Limited vs JCIT ITAT, Mumbai [2013] 40 taxman.com 469
6 UTI Bank Ltd vs ACIT ITAT, ITA No. 2572/AHD/2006, 4386
Ahmadabad & 4388/AHD/2008 and
790/AHD/2012
7 ICICI Ltd. vs JCIT ITAT, Mumbai [2008] 115 ITD 25
8 M/s ICDS Ltd. vs CIT, Supreme Court [2013] 40 taxman.com 129
Mysore
9 CIT vs Cosmo Films Ltd. Delhi High [2011] 12 taxman.com 217
Court
10 First Leasing Company of Madras High [2013] 38 taxman.com 213
India Ltd. vs. ACIT Court
11 DCIT vs Gujarat Gujarat High [2013] 33 taxman.com 117
Narmada Valley Court
Fertilizers Co Ltd
12 CIT v Gujarat Gas Co Ltd Gujarat High [2009] 308 ITR 243
Court
13 CIT vs Zuari Finance Ltd Bombay High [2005] 144 TAXMAN 113
Court
14 CIT vs. Punjab State Punjab & [2009] 183 TAXMAN 419
Electricity Board Haryana High
Court
15 Industrial Dev. Corp of Orissa High [2004] 137 TAXMAN 556
Orissa Ltd vs CIT Court
5 Industrial Development Bank of India
ITA No. 1839/Mum/2004
ITAs No. 3369 to 3370/Mum/2004
& Another three Group appeals
and the decision of Hon'ble Supreme Court in the case of ICDS Ltd vs
CIT, reported in 29 taxman.com 129, wherein it was held (in the catch
note),
"Where assessee, engaged in business of hire purchase, leasing
etc., having purchased vehicles from manufacturers, leased out
those vehicles to customers, it was entitled to claim depreciation
in respect of vehicles so leased out".
11. The AR, therefore, submitted that the depreciation as claimed by
the assessee, be allowed on the above transaction.
12. The AR further submitted that in so far as "cases not classified
as transaction Finance Transactions", the revenue authorities did not
accord reasonable opportunity to the assessee to substantiate its case
on the claim made for allowance of depreciation. To show as to how
the prayer made by the assessee was not adhered to by the revenue
authorities, the AR referred to the SOF (taking up one case to explain
the facts) and submitted,
"REPL Engineering:
The learned AO has not properly appreciated the evidence on record.
REPL is a well known engineering concern. IDBI has given under lease
certain equipment, details of which are set out at page 30 of the
assessment order. The AO has sought to derive support for disallowing
the claim of the basis of a survey made by IT department and a
statement recorded at that time.
In response to AO's letter the appellant filed a detailed reply enclosing
letter of REPL dt. 10/3/97 clarifying the doubts created by IT survey.
Along with our letter, REPL furnished a copy of the letter dt. 22/1/97
written by them to IT Dept. The letter makes the whole position clear.
We submit that we had enclosed a copy of the REPL's letter dt.
10/3/97 without reply dt. 14/3/97. In any case the IT department had
on its record the letter of REPL dt. 22/1/97 addressed to ADI(INV) Unit
II(3) reconciling the assets leased by IDBI with the observations of the
survey conducted by the IT Dept. Further, IDBI had suggested in its
letter of 14/3/97 that if the AO considers it necessary, IDBI was
prepared for a joint inspection of the assets by IT Dept. and IDBI.
It is submitted that the transaction is a genuine leasing transaction
entered into in the normal course of IDBI's leasing business. The
appellant's claim for depreciation be allowed".
The AR submitted that similar treatment had been given to the other
transactions.
6 Industrial Development Bank of India
ITA No. 1839/Mum/2004
ITAs No. 3369 to 3370/Mum/2004
& Another three Group appeals
13. The AR submitted that though the case of the assessee was
strong enough to substantiate the claim, but it is prepared to go back
to the AO, to satisfy its claim, before the AR by having joint inspection
and reconciliation of the facts and transactions.
14. The DR on the other hand submitted that there is no infirmity in
the orders of the revenue authorities, but if in case part of the
transactions are being restored to the AO, then it would be better that
all the transactions are restored to the AO.
15. We have heard the arguments and perused the orders of the
revenue authorities and that showing distinction drawn by the
assessee on the similar transactions, which the DR could not negate.
Hence, the chart, read with SOF are considered to be correct. In such
a circumstances, we hold that transactions classified as finance
transactions in the first table are squarely covered by our own order in
the case of ICICI Ltd vs JCIT, ITA No. 1881/Mum/2000 and the case
of ICDS Ltd. vs CIT (supra) by the Hon'ble Supreme Court and various
other decisions, as mentioned in the pre para.
16. In so far as the second category of cases, we find that despite
the fact that the assessee had prayed for joint inspection of leased
assets and evidences there off, the revenue authorities brushed aside
the requests made. This, according to us is against the principals of
natural justice, which can only be remedied by restoring the
issues/transactions to the file of the AO for fresh adjudication.
17. We, therefore, set aside the order of the CIT(A) and direct the AO
to examine the transactions with Kedia Group of companies, REPL
Engineering Ltd., Patheja Bros Forging & Stampings Ltd., and Padma
Alloys Castings Ltd. afresh, for the allowance and claim of depreciation
as per law and judicial decisions as mentioned in pre para.
7 Industrial Development Bank of India
ITA No. 1839/Mum/2004
ITAs No. 3369 to 3370/Mum/2004
& Another three Group appeals
18. Ground no.1 is therefore allowed for statistical purposes.
19. In the result, appeal of the assessee in ITA 1839/Mum/2004 for
AY 1994-95 is partly allowed.
ITA No. :3369/Mum/2004 : AY 1995-96 :
20. The following grounds have been taken:
"Aggrieved by the Order u/s 250 of the Income Tax Act, 1961 dated
7.1.2004 passed by the Commissioner of Income Tax (Appeals) XII,
Mumbai hereinafter referred to as the CIT(A)] for the assessment year 1994-
95, the appellant begs to file this appeal and raise the following grounds of
appeal which are independent of and without prejudice to each other.
1.1 The learned CIT(A) erred in holding that lease transactions entered into
by the appellant are in the nature of loan transactions. He ought to have
allowed the depreciation claim made by the appellant in respect of all the
lease transactions entered into by the appellant in accordance with the law
and circulars issued by the CBDT. In accordance with the provisions of
section 32 of the IT Act, depreciation on assets given on lease should have
been allowed to the appellant, being the owner of the assets in the said
lease transactions.
1.2 The learned CIT(A) committed a gross error of law and facts in
confirming the disallowance of depreciation in respect of assets given on
lease in the earlier years.
2. Deduction u/s 80M :
The learned CIT(A) committed a gross error of law and facts in not
accepting the claim of appellant u/s 80M in the manner in which it was
claimed. The learned CIT(A) erred in not giving a finding on this issue and
also not following the decision of the ITAT in appellant's case in AY 1992-
93 and 1993-94. The appellant submits that its claim u/s 80M should be
accepted in totality.
The appellant craves to add to, amend, alter, modify, delete and/or
substitute all or any of the above grounds of appeal till the final disposal of
the appeal".
21. Ground no. 1 pertains to claim of depreciation in respect of
assets given on lease.
22. The assessee Industrial Development Bank of India (IDBI) is a
government owned financial institution, engaged in providing long
8 Industrial Development Bank of India
ITA No. 1839/Mum/2004
ITAs No. 3369 to 3370/Mum/2004
& Another three Group appeals
term lease, refinance and lease. The scope of this line of business of
the assessee is,
"1. Ownership of equipment vests with IDBI.(No lessee has
ever claimed that he is the de-facto or de-jure owner of
the asset given on lease and therefore, no lessee has
claimed depreciation in his income tax assessment in
respect of assets given on lease by IDBI.
2. The commencement and termination of leases is
specified and the lease period has also been specified.
3. The assets have been identified and both the lessor and
lessee are clear as to which particular equipment
belongs to IDBI.
4. The agreements provide for return of equipment on the
expiry of the lease.
5. The agreements provide that lessee has no right to
transfer or assign or mortgage the asset (given on lease
by IDBI) in favour of any other party.
6. The rental structure has been laid down in the respective
agreements.
7. The agreements provide for insurance of the assets.
These features of our lease agreements are in line with the
observations on the aspects in the departmental publication on
leasing titled "Study of Leasing Companies"
23. The AO, while examining the books and scope of business of the
assessee, identified that, transaction conducted with certain parties
were loans and not lease.
24. At the time of hearing, the AR submitted that the issue involves
two types of indulgence, i.e. transactions held to be loan, after
consideration and transactions held to be loan, without any specific
reason.
25. The AR provided the break up as follows:
Cases classified as Finance Transaction
"Sr. No. Name of Lessee
1 Gujarat State Fertilizer
2 Petrofilsar)
3 Godrej Soaps
4 Shriram Transport
5 Shriram Investment
6 Shipping Corporation
7 APS Star Industries
9 Industrial Development Bank of India
ITA No. 1839/Mum/2004
ITAs No. 3369 to 3370/Mum/2004
& Another three Group appeals
8 Selvel Advertising
9 Wipro GE
10 Borosil Glass Works
11 Mcdowell
12 Siris
13 Libra Filaments
14 Garwar Marine
15 Sandur Manganese (two)
16 Salgaocar Mining
17 Sterling Strips
18 Ucal Fuel
19 Kores India
20 Anand Bazar Patrika
21 Llyod Steel ind.
22 Reliance Granite
23 Punj Llyod
24 Imotecj
25 TATA Electric Co.
26 Mafatlal Industries
27 Sirpur
28 Sri Jayajyothi & Co. Ltd.
29 Atlas Automotive Components Pvt Ltd
30 Maruti Plastics Ltd
Cases not classified as Finance Transaction
Sr. No. Name of Lessee
1 Trident Steels
2 Nathani Steels
3 Patheja Brothers
4 Kedia Distilleries
26. The AR submitted that in so far as items 1 to 30 in the category
"cases classified as Finance Transactions" are concerned, the issue of
depreciation is squarely covered by the various decisions of the
Mumbai ITAT including our order in ITA No. 1839/Mum/2004, as
above and by other decisions by the higher fora:
S.No. Particulars Court Citation
1 ICICI Ltd. vs JCIT ITAT, Mumbai [2014] ITA No. 1881 &
3708/M/2000; ITA No.
3535/M/2004 and ITA
3827/M/2005
2 ICICI Bank Ltd. vs JCIT ITAT, [2014] ITA No. 3643,
Mumbai 3644/M/2001
3 M/s Larsen & Toubro ITAT, [2013] ITA No. 2200/M/2000
Ltd. vs. JCIT Mumbai and ITA 2890/M/2001
4 Development Credit Bank ITAT, Mumbai [2013] 40 taxman.com 532
vs DCIT
10 Industrial Development Bank of India
ITA No. 1839/Mum/2004
ITAs No. 3369 to 3370/Mum/2004
& Another three Group appeals
5 SICOM Limited vs JCIT ITAT, Mumbai [2013] 40 taxman.com 469
6 UTI Bank Ltd vs ACIT ITAT, ITA No. 2572/AHD/2006, 4386
Ahmadabad & 4388/AHD/2008 and
790/AHD/2012
7 ICICI Ltd. vs JCIT ITAT, Mumbai [2008] 115 ITD 25
8 M/s ICDS Ltd. vs CIT, Supreme Court [2013] 40 taxman.com 129
Mysore
9 CIT vs Cosmo Films Ltd. Delhi High [2011] 12 taxman.com 217
Court
10 First Leasing Company of Madras High [2013] 38 taxman.com 213
India Ltd. vs. ACIT Court
11 DCIT vs Gujarat Gujarat High [2013] 33 taxman.com 117
Narmada Valley Court
Fertilizers Co Ltd
12 CIT v Gujarat Gas Co Ltd Gujarat High [2009] 308 ITR 243
Court
13 CIT vs Zuari Finance Ltd Bombay High [2005] 144 TAXMAN 113
Court
14 CIT vs. Punjab State Punjab & [2009] 183 TAXMAN 419
Electricity Board Haryana High
Court
15 Industrial Dev. Corp of Orissa High [2004] 137 TAXMAN 556
Orissa Ltd vs CIT Court
and the decision of Hon'ble Supreme Court in the case of ICDS Ltd vs
CIT, reported in 29 taxman.com 129, wherein it was held (in the catch
note),
"Where assessee, engaged in business of hire purchase, leasing
etc., having purchased vehicles from manufacturers, leased out
those vehicles to customers, it was entitled to claim depreciation
in respect of vehicles so leased out".
27. The AR, therefore, submitted that the depreciation as claimed be
allowed on the above transaction.
28. The AR further submitted that in so far as "cases not classified
as transaction Finance Transactions", the revenue authorities did not
accord reasonable opportunity to the assessee to substantiate its case
on the claim made for allowance of depreciation as submitted by the
AR in the preceding year and also referred to in the SOF
11 Industrial Development Bank of India
ITA No. 1839/Mum/2004
ITAs No. 3369 to 3370/Mum/2004
& Another three Group appeals
The AR submitted that similar treatment had been given to the other
transactions in the current year as well to the transactions falling in
"cash not classified as finance transactions".
29. The AR submitted that though the case of the assessee was
strong enough to substantiate the claim, but it is prepared to go back
to the AO, to satisfy its claim, but it is prepared to go back to the AO,
to satisfy its claim before the AR by having joint inspection and
reconciliation of the facts and transactions.
30. The DR on the other hand submitted that there is no infirmity in
the orders of the revenue authorities, but if in case part of the
transactions are being restored to the AO, then it would be better that
all the transactions are restored to the AO.
31. We have heard the arguments and perused the orders of the
revenue authorities and that showing distinction drawn by the
assessee on the similar transactions, which the DR could not negate.
Hence, the chart, read with SOF are considered to be correct. In such
a circumstances, we hold that transactions classified as finance
transactions in the first table are squarely covered by our own order in
the case of ICICI Ltd vs JCIT, ITA No. 1881/Mum/2000 and the case
of ICDS Ltd. vs CIT (supra) by the Hon'ble Supreme Court and various
other decisions in the pre para and our own order in ITA No.
1839/Mum/2004. Accordingly we direct the AO to delete the
disallowance and allow the claim of depreciation.
32. In so far as the second category of cases, we find that dispute
the fact that the assessee had prayed for joint inspection of leased
assets and evidences there off, the revenue authorities brushed aside
the requests made. This, according to us is against the principals of
12 Industrial Development Bank of India
ITA No. 1839/Mum/2004
ITAs No. 3369 to 3370/Mum/2004
& Another three Group appeals
natural justice, which can only be remedied by restoring the
issues/transactions to the file of the AO for fresh adjudication.
33. We, therefore, set aside the order of the CIT(A) and direct the AO
to examine the transactions with Kedia Distilleries, Trident Steels,
Patheja Bros Forging & Stampings Ltd., and Nathani Steels afresh, for
the allowance and claim of depreciation as per law and judicial
decisions as mentioned in pre para.
34. Ground no.1 is therefore allowed for statistical purposes.
35. Ground no. 2 relates to deduction under section Deduction u/s
80M.
36. As argued and relied upon by the AR before us in the
departmental appeal in the case of DCIT vs M/s Industrial
Development Bank of India for AY 1992-93 vide ITAT Mumbai `I' Bench
order dated 24th December, 2002 in ITA No. 3249/Bom/1995 and
relevant portion of the order covering the impugned issue reads as
under:
"The assessee bank advances loans to entrepreneurs and thus helps in
the industrial development of the country. During the year under appeal
in addition to earning income from bank operations, it earned dividend
income. For allowing u/s 80M of the Income Tax Act, 1961, the
Assessing Officer disallowed proportionate expenses for earning
dividend income as per para 19 of page 18 of the assessment order.
The assessee appealed to the learned CIT(A) and submitted that
proportionate expenses estimated by the Assessing Officer were on the
high side. The learned CIT(A) concurred with the findings of the
Assessing Officer and held that the assessee must have incurred
expenditure for earning dividend, but the proportionate expenses
disallowed by the Assessing Officer were on the high side. Following
the decision of the Tribunal in the case of ICICI Ltd. in which 1%
dividend income is deductible while determining the deduction u/s 80M
of the Act, the learned CIT(A) directed the Assessing Officer to restrict
the disallowance to 1% only.
3. The learned departmental representative submitted that the
assessee earned substantial dividend income, it did incur expenditure
on staff, stationery etc. for earning such dividend and while the learned
CIT(A) has upheld in principle the incurrence of such expenses, his
13 Industrial Development Bank of India
ITA No. 1839/Mum/2004
ITAs No. 3369 to 3370/Mum/2004
& Another three Group appeals
direction for disallowance of only 1% gross dividend income as
expenses is not justified as it is on the lower side.
4. The learned counsel for the assessee submitted that even 1%
disallowance upheld by the learned CIT(A) is on the higher side
because the assessee's business was not to earn dividend income and
the main activity is to give loans and as the name itself suggests, the
bank is engaged in the industrial development of the country by
advancing thousands of crores to the entrepreneurs. The loans
advanced by the bank during the year under appeal stood over 20,000
crores. He submitted that bank has an investment department which is
manned ended by a skeleton staff. He placed reliance on the decision of
the Tribunal in the case of ICICI Ltd. (supra).
5. After hearing both the parties, we do not find any infirmity in
the order of the learned CIT(A). In our view, the learned CIT(A) has
taken a correct view which is in consonance with the order of the
Tribunal in the case of ICICI Ltd., referred to supra. Accordingly, we
decline to interfere".
37. After going through the rival submissions and case laws cited by
the AR, in ITA 3429/Bom/1996 (supra), which squarely covers the
impugned issue, and accordingly respectfully following the same we
set aside the order of the CIT(A) and delete the addition as made by
him and allow ground no. 2 in favour of the assessee and against the
revenue.
38. In the result, the assessee's appeal in ITA No. 3369/Mum/2004
for AY 1995-96 is treated as allowed.
ITA No. 3370/Mum/2004 : AY 1996-97 :
39. The following grounds have been taken:
"Aggrieved by the Order u/s 250 of the Income Tax Act, 1961 dated
7.1.2004 passed by the Commissioner of Income Tax (Appeals) XII,
Mumbai hereinafter referred to as the CIT(A)] for the assessment year 1994-
95, the appellant begs to file this appeal and raise the following grounds of
appeal which are independent of and without prejudice to each other.
5.1 The learned CIT(A) erred in holding that lease transactions entered into
by the appellant are in the nature of loan transactions. He ought to have
allowed the depreciation claim made by the appellant in respect of all the
lease transactions entered into by the appellant in accordance with the law
and circulars issued by the CBDT. In accordance with the provisions of
section 32 of the IT Act, depreciation on assets given on lease should have
been allowed to the appellant, being the owner of the assets in the said
lease transactions.
14 Industrial Development Bank of India
ITA No. 1839/Mum/2004
ITAs No. 3369 to 3370/Mum/2004
& Another three Group appeals
5.2 The learned CIT(A) committed a gross error of law and facts in
confirming the disallowance of depreciation in respect of assets given on
lease in the earlier years.
6. Deduction u/s 80M :
The learned CIT(A) committed a gross error of law and facts in not
accepting the claim of appellant u/s 80M in the manner in which it was
claimed. The learned CIT(A) erred in not giving a finding on this issue and
also not following the decision of the ITAT in appellant's case in AY 1992-
93 and 1993-94. The appellant submits that its claim u/s 80M should be
accepted in totality.
The appellant craves to add to, amend, alter, modify, delete and/or
substitute all or any of the above grounds of appeal till the final disposal of
the appeal".
40. Ground no. 1 pertains to claim of depreciation in respect of
assets given on lease.
41. The assessee Industrial Development Bank of India (IDBI) is a
government owned financial institution, engaged in providing long
term lease, refinance and lease. The scope of this line of business of
the assessee is,
"1. Ownership of equipment vests with IDBI.(No lessee has
ever claimed that he is the de-facto or de-jure owner of
the asset given on lease and therefore, no lessee has
claimed depreciation in his income tax assessment in
respect of assets given on lease by IDBI.
2. The commencement and termination of leases is
specified and the lease period has also been specified.
3. The assets have been identified and both the lessor and
lessee are clear as to which particular equipment
belongs to IDBI.
4. The agreements provide for return of equipment on the
expiry of the lease.
5. The agreements provide that lessee has no right to
transfer or assign or mortgage the asset (given on lease
by IDBI) in favour of any other party.
6. The rental structure has been laid down in the respective
agreements.
7. The agreements provide for insurance of the assets.
These features of our lease agreements are in line with the
observations on the aspects in the departmental publication on
leasing titled "Study of Leasing Companies"
15 Industrial Development Bank of India
ITA No. 1839/Mum/2004
ITAs No. 3369 to 3370/Mum/2004
& Another three Group appeals
42. The AO, while examining the books and scope of business of the
assessee, identified that, transaction conducted with the following
parties were loans and not lease.
43. At the time of hearing, the AR submitted that the issue involves
two types of indulgence, i.e. transactions held to be loan, after
consideration and transactions held to be loan, without any specific
reason.
44. The AR provided the break up as follows:
Cases classified as Finance Transaction
"Sr. No. Name of Lessee
1 Videocon Applicance
2 Videocon International Ltd.
3 Aigis Chemicals Ltd.
4 Eastern & Sugar Industries (two)
5 Trichi Distilleries Ltd. (two)
6 Mangalore Refineries and Petro Chemcials
7 Essar Steel Ltd. (three)
8 Alembic Chemicals
9 Delton Cables Limited
10 Karnataka Electricity Board
11 Mesco Airlines Ltd.
12 Unitech Ltd. (two)
13 Simbhaoli Sugar Mills
14 Beta Napthol Ltd. (two)
15 Noida Medicare Centre Ltd.
16 V M Jog Engineering Ltd.
17 Uma Parmeshwari Mills
18 Diwan Steel Ltd.
19 Jay Yushin Ltd.
20 Maruti Udyog Ltd.
21 Shriram Investment Ltd.
22 Shriram Transport Finance
23 Mc. Dowell (two)
24 Selvel Advertising Ltd.
25 Anand Bazar Patrika Ltd.
26 Tata Electric Company Ltd.
27 Soya Udyog
28 Kitty Steels Ltd.
Cases not classified as Finance Transaction
Sr. No. Name of Lessee
16 Industrial Development Bank of India
ITA No. 1839/Mum/2004
ITAs No. 3369 to 3370/Mum/2004
& Another three Group appeals
1 Suman Motels Ltd.
2 Kedia Galleon Ltd.
3 Trident Steel Ltd.
45. The AR submitted that in so far as items 1 to 28 in the category
"cases classified as Finance Transactions" are concerned, the issue of
depreciation is squarely covered by the various decisions of the
Mumbai ITAT and by our own order in ITA No. 1839/Mum/2004, in
assessment years 1994-95, and by other decisions of higher fora:
S.No. Particulars Court Citation
1 ICICI Ltd. vs JCIT ITAT, Mumbai [2014] ITA No. 1881 &
3708/M/2000; ITA No.
3535/M/2004 and ITA
3827/M/2005
2 ICICI Bank Ltd. vs JCIT ITAT, [2014] ITA No. 3643,
Mumbai 3644/M/2001
3 M/s Larsen & Toubro ITAT, [2013] ITA No. 2200/M/2000
Ltd. vs. JCIT Mumbai and ITA 2890/M/2001
4 Development Credit Bank ITAT, Mumbai [2013] 40 taxman.com 532
vs DCIT
5 SICOM Limited vs JCIT ITAT, Mumbai [2013] 40 taxman.com 469
6 UTI Bank Ltd vs ACIT ITAT, ITA No. 2572/AHD/2006, 4386
Ahmadabad & 4388/AHD/2008 and
790/AHD/2012
7 ICICI Ltd. vs JCIT ITAT, Mumbai [2008] 115 ITD 25
8 M/s ICDS Ltd. vs CIT, Supreme Court [2013] 40 taxman.com 129
Mysore
9 CIT vs Cosmo Films Ltd. Delhi High [2011] 12 taxman.com 217
Court
10 First Leasing Company of Madras High [2013] 38 taxman.com 213
India Ltd. vs. ACIT Court
11 DCIT vs Gujarat Gujarat High [2013] 33 taxman.com 117
Narmada Valley Court
Fertilizers Co Ltd
12 CIT v Gujarat Gas Co Ltd Gujarat High [2009] 308 ITR 243
Court
13 CIT vs Zuari Finance Ltd Bombay High [2005] 144 TAXMAN 113
Court
14 CIT vs. Punjab State Punjab & [2009] 183 TAXMAN 419
Electricity Board Haryana High
Court
15 Industrial Dev. Corp of Orissa High [2004] 137 TAXMAN 556
Orissa Ltd vs CIT Court
and the decision of Hon'ble Supreme Court in the case of ICDS Ltd vs
CIT, reported in 29 taxman.com 129, wherein it was held (in the catch
note),
17 Industrial Development Bank of India
ITA No. 1839/Mum/2004
ITAs No. 3369 to 3370/Mum/2004
& Another three Group appeals
"Where assessee, engaged in business of hire purchase, leasing
etc., having purchased vehicles from manufacturers, leased out
those vehicles to customers, it was entitled to claim depreciation
in respect of vehicles so leased out".
46. The AR, therefore, submitted that the depreciation as claimed be
allowed on the above transaction.
47. The AR further submitted that in so far as "cases not classified
as transaction Finance Transactions", the revenue authorities did not
accord reasonable opportunity to the assessee to substantiate its case
on the claim made for allowance of depreciation as submitted by the
AR in assessment year 1994-95 and also as referred to in the SOF.
The AR submitted that similar treatment had been given to the other
transactions.
48. The AR submitted that though the case of the assessee was
strong enough to substantiate the claim, but it is prepared to go back
to the AO, to satisfy its claim, but it is prepared to go back to the AO,
to satisfy its claim before the AR by having joint inspection and
reconciliation of the facts and transactions in the current year as well,
to the transactions falling in "cases not classified as finance
transactions".
49. The DR on the other hand submitted that there is no infirmity in
the orders of the revenue authorities, but if in case part of the
transactions are being restored to the AO, then it would be better that
all the transactions are restored to the AO.
50. We have heard the arguments and perused the orders of the
revenue authorities and that showing distinction drawn by the
assessee on the similar transactions, which the DR could not negate.
Hence, the chart, read with SOF are considered to be correct. In such
a circumstances, we hold that transactions classified as finance
18 Industrial Development Bank of India
ITA No. 1839/Mum/2004
ITAs No. 3369 to 3370/Mum/2004
& Another three Group appeals
transactions in the first table are squarely covered by our own order in
the case of ICICI Ltd vs JCIT, ITA No. 1881/Mum/2000 and the case
of ICDS Ltd. vs CIT (supra) by the Hon'ble Supreme Court and various
other decisions in the pre para and our own order in ITA No.
1839/Mum/2004. Accordingly we direct the AO to delete the
disallowance and allow the claim of depreciation.
51. In so far as the second category of cases, we find that dispute
the fact that the assessee had prayed for joint inspection of leased
assets and evidences there off, the revenue authorities brushed aside
the requests made. This, according to us is against the principals of
natural justice, which can only be remedied by restoring the
issues/transactions to the file of the AO for fresh adjudication.
52. We, therefore, set aside the order of the CIT(A) and direct the AO
to examine the transactions with Galleon Ltd, Trident Steels Ltd., and
Suman Motels Ltd. afresh, for the allowance and claim of depreciation
as per law and judicial decisions as mentioned in pre para.
53. Ground no.1 is therefore allowed for statistical purposes.
54. Ground no. 2 relates to deduction under section Deduction u/s
80M.
55. As argued and relied upon by the AR before us in the
departmental appeal in the case of DCIT vs M/s Industrial
Development Bank of India for AY 1992-93 vide ITAT Mumbai `I' Bench
order dated 24th December, 2002 in ITA No. 3249/Bom/1995 and
relevant portion of the order covering the impugned issue reads as
under:
"The assessee bank advances loans to entrepreneurs and thus helps in
the industrial development of the country. During the year under appeal
in addition to earning income from bank operations, it earned dividend
income. For allowing u/s 80M of the Income Tax Act, 1961, the
19 Industrial Development Bank of India
ITA No. 1839/Mum/2004
ITAs No. 3369 to 3370/Mum/2004
& Another three Group appeals
Assessing Officer disallowed proportionate expenses for earning
dividend income as per para 19 of page 18 of the assessment order.
The assessee appealed to the learned CIT(A) and submitted that
proportionate expenses estimated by the Assessing Officer were on the
high side. The learned CIT(A) concurred with the findings of the
Assessing Officer and held that the assessee must have incurred
expenditure for earning dividend, but the proportionate expenses
disallowed by the Assessing Officer were on the high side. Following
the decision of the Tribunal in the case of ICICI Ltd. in which 1%
dividend income is deductible while determining the deduction u/s 80M
of the Act, the learned CIT(A) directed the Assessing Officer to restrict
the disallowance to 1% only.
7. The learned departmental representative submitted that the
assessee earned substantial dividend income, it did incur expenditure
on staff, stationery etc. for earning such dividend and while the learned
CIT(A) has upheld in principle the incurrence of such expenses, his
direction for disallowance of only 1% gross dividend income as
expenses is not justified as it is on the lower side.
8. The learned counsel for the assessee submitted that even 1%
disallowance upheld by the learned CIT(A) is on the higher side
because the assessee's business was not to earn dividend income and
the main activity is to give loans and as the name itself suggests, the
bank is engaged in the industrial development of the country by
advancing thousands of crores to the entrepreneurs. The loans
advanced by the bank during the year under appeal stood over 20,000
crores. He submitted that bank has an investment department which is
manned ended by a skeleton staff. He placed reliance on the decision of
the Tribunal in the case of ICICI Ltd. (supra).
9. After hearing both the parties, we do not find any infirmity in
the order of the learned CIT(A). In our view, the learned CIT(A) has
taken a correct view which is in consonance with the order of the
Tribunal in the case of ICICI Ltd., referred to supra. Accordingly, we
decline to interfere".
56. After going through the rival submissions and case laws cited by
the AR, in ITA 3429/Bom/1996 (supra), which squarely covers the
impugned issue, and accordingly respectfully following the same, we,
set aside the order of the CIT(A) and delete the addition as made by
him and allow ground no. 2 in favour of the assessee and against the
revenue.
57. In the result, the appeal of the assessee in ITA 3369/Mum/2004
treated as allowed.
20 Industrial Development Bank of India
ITA No. 1839/Mum/2004
ITAs No. 3369 to 3370/Mum/2004
& Another three Group appeals
ITAs No. :1951, 3922 & 3923/Mum/2006 AYs 94-95, 95-96 & 96-97 :
58. The instant appeals are filed against the orders of CIT(A) XXVII,
Mumbai, dated 23.12.2015, 23.02.2006 & 23.02.2006 for AYs 1994-
95, 1995-96 & 1996-97 respectively, sustaining the penalty, as levied
by the AO u/s 271(1)(c) of the Income Tax Act, 1961.
59. Since all the three appeals have common grounds of appeal, we
for the sake of convenience and brevity are disposing off the appeals
through common and consolidated order.
60. Since we have deleted the additions and/or set aside various
issues involved in the appeals in quantum in assessment years 1994-
95, 1995-96 and 1996-97, the penalties as levied do not have any legs
to stand. Considering the above facts, we set aside the orders of the
CIT(A) in the three impugned years and direct the AO to cancel the
penalties as levied.
61. Since we have deleted the additions and/or set aside various
issues involved in the appeals in quantum, the penalties as levied do
not have any legs to stand. Considering the above facts, we set aside
the orders of the CIT(A) in the three impugned years and direct the AO
to cancel the penalties as levied.
62. In the result, appeals as filed by the assessee against the levy of
penalty are allowed.
To sum-up the results of the assessee's appeals:
ITA No. : 1839/Mum/2004 for AY 1994-95 stands allowed as per the
terms directed in the order
ITA No. : 3369/Mum/2004 for AY 1995-96 stands allowed as per the
terms directed in the order
21 Industrial Development Bank of India
ITA No. 1839/Mum/2004
ITAs No. 3369 to 3370/Mum/2004
& Another three Group appeals
ITA No. : 3370/Mum/2004 for AY 1996-97 stands allowed as per the
terms directed in the order
Penalty appeals in :
ITA No. : 1951/M/2006 AY 1994-95 is allowed
ITA No. : 3922/M/2006 AY 1995-96 is allowed
ITA No. : 3923/M/2006 AY 1996-97 is allowed
Order pronounced in the open Court on 29th October, 2014.
Sd/- Sd/-
(N.K. BILLAIYA) (VIVEK VARMA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Date: 29th October, 2014
/Copy to:-
1) /The Appellant.
2) ×/The Respondent.
3) The CIT (A)-XII / XXVII, Mumbai.
4) III/Concerned___, Mumbai/The CIT-III/ concerned ____,Mumbai.
5) "D" ,
The D.R. "D" Bench, Mumbai.
6) [
Copy to Guard File.
/By Order
[
/
,
Dy./Asstt. Registrar
I.T.A.T., Mumbai
*å..
*Chavan, Sr. PS
|
