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« From the Courts »
  Vatsala Shenoy vs. JCIT (Supreme Court)
  Vatsala Shenoy vs. JCIT (Supreme Court)
 M.K.Overseas Pvt. Ltd. Vs. Pr.Commissioner Of Income Tax-06
 Arshia Ahmed Qureshi Vs. Pr. Commissioner Of Income Tax-21
 CHAUDHARY SKIN TRADING COMPANY Vs. PR. COMMISSIONER OF INCOME TAX-21
  Sushila Devi vs. CIT (Delhi High Court)
  Vatsala Shenoy vs. JCIT (Supreme Court)
 Deputy Director Of Income Tax Vs. Virage Logic International
 Commissioner Of Income Tax-3 International Taxation Vs. Virage Logic International India
 Pr. Commissioner Of Income Tax-06 Vs. Moderate Leasing And Capital Services Pvt. Ltd.
 ITO vs. Vikram A. Pradhan (ITAT Mumbai)

Industrial Development Bank of India, Taxation Cell, 3rd Floor, IDBI Tower, Cuffe Parade, Mumbai -400 005 Vs DCIT Range -3(1), 6th Floor, Room No. 623, Aayakar Bhavan, Mumbai -400 020
November, 03rd 2014
                  "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

 
 
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