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2015 (11) TMI 17 - AT - Income TaxNature of expenditure - Payment made to Citicorp Information Technology Services Limited(CITIL) for the purchase of processing contracts - Revenue v/s capital expenditure - Held that - Assessee company vide assignment agreement effective from 01.08.1998, has acquired the service agreement entered into between CITI Bank and CITIL whereby all the liabilities, rights and obligation and interest in the aforestated agreement were acquired by the assessee company. Since these are service agreement from which the revenue is to be generated over a period of unexpired 25 months from 01.08.1998 and the assesse s counsel has drawn our attention to the audited accounts for the year ended 30.06.1999 to the fact that the revenue of ₹ 9,06,10,908/- being transaction processing and administrative fees is received by the asssesee company out of these assigned agreement/ contracts only during the period ended 30th June 1999 and no processing division/assets under these agreements was acquired nor there is any slump sale happening in favour of the assessee company rather it is merely assignment of agreements in favour of the assessee company whereby the unexpired period revenue generated contracts are assigned in favour of the assessee company. The entire consideration of ₹ 85 lac is paid to acquire the unexpired portion of the service agreements which will generate revenue for the assessee company during the unexpired period of this service agreement ie 25 months from 01.08.1998. Keeping in view the principle of matching concepts of revenue and expenditure and also that these assignment of agreements are towards revenue field, we hold that assessee company has rightly charged as revenue expenses , 7 months expenses out of 25 months unexpired period of contract being ₹ 23,80,000/- and hence additions made by the assessing officer to the tune of ₹ 23,80,000/- to the income of the assessee company and as confirmed by the CIT(A) is hereby deleted. - Decided in favour of assessee. Disallowance of depreciation on cars given on lease - AO disallowed claim treating it to be in the nature of financing and not leasing transactions - Held that - To claim depreciation, the asset should be owned by the assessee and it should be used for the purpose of business of the assessee. In this case, the assessee company is owning the asset i.e. cars till the same are sold to the associated concern/employees. The assessee company by giving these cars on lease is in fact using the same for its own business. The Judgment of Hon ble Supreme Court in the case of ICDS Ltd (2013 (1) TMI 344 - SUPREME COURT) is directly applicable in the facts and circumstances of the present case and the assessee company has rightly claimed the depreciation on the cars leased by the assessee company. The assessee company has also stated that it has brought on record before the CIT(A), the evidence that no depreciation is claimed by the lessee on these leased cars and the CIT(A) has given finding of the fact that there was no basis for the assessing officer to conclude that the lessee s have claimed depreciation on these leased assets i.e. cars. Hence in view of the above, we hold that assessee company has rightly claimed the depreciation on the leased assets i.e. cars and the disallowance of Depreciation of ₹ 3,00,52,049/- claimed by the assessee company on leased asset i.e. cars as disallowed by the assessing officer and as confirmed by the CIT(A) is hereby deleted. - Decided in favour of assessee. Depreciation @ 40% - whether should be allowed on car lease which were purchased after 1.10.1998 but before 01st April 1999 and put to use before 1st April 1999? - Held that - The assessee company is owner of these leased cars till they are sold to employees/associated concerns . We also held that the assessee company is entitled for depreciation on these leased vehicles . Since the assessee is engaged in the business of leasing and these cars have been given on lease in the normal course of business, hence, it is to be held that the assessee company has given these vehicles on lease and they are commercial vehicles entitled for depreciation @ 40% if purchased after 01.10.1998 but before 1st April 1999 and are put to use before the 1st day of April 1999 in accordance with the entry III (2) (iia) of part A of Appendix I applicable to the assessment years 1998-99 to 2002-03 as per definition of the commercial vehicles which have been defined in Note No. 3A of the Appendix I to Rule 5 below the table of rates at which depreciation is admissible which includes light motor vehicles , for the purpose of business or profession as per amended provisions of Section 32 of the Act - Decided in favour of assessee. Disallowance of depreciation on computers leased by the assessee company - Held that - assessee company is entitled for the depreciation on the leased assets i.e. computers @ 60% ( In this year at the rate of 30% since the asset were used for less than 180 days) of ₹ 9,86,474 on the computers purchased of ₹ 32,88,246/- during the assessment year and given on lease and the disallowance of Depreciation on the leased computers as disallowed by the assessing officer and as confirmed by the CIT(A) is hereby deleted. See case of ICDS Ltd (2013 (1) TMI 344 - SUPREME COURT) Depreciation on cars held for own use which were purchased after 1.10.1998 - Held that - The cars which are purchased by the assessee after 1.10.1998 but before 1st April 1999 and put to use for its own office purposes before 1st April 1999 are commercial vehicle as referred to in the entry III(2)(iia) of part A of Appendix I, under the definition of commercial vehicle which include light motor vehicle as per definition contained in Motor Vehicles Act,1988 and there is no such stipulation that the cars are to be used for purpose of giving them on hire. The assessee company is using the car for its own office purpose which is for the purpose of its business and hence the assessee company is entitled for higher depreciation @ 40% and the disallowance of excess depreciation of ₹ 64,708/- claimed by the assessee which was disallowed by the assessing officer and as upheld by the CIT(A) is hereby deleted. - Decided in favour of assessee. Expenditure on repair and maintenance of the computers - Held that - These expenses are to be fully allowed as they are incurred for the purpose of business of the assessee company and hence the disallowance as upheld by the CIT(A) is deleted. - Decided in favour of assessee. Reopening of assessment - payment of interest and details of outstanding secured loans - Held that - The original assessment proceedings u/s 143(3) of the Act , the assessing officer has duly asked specific query regarding payment of interest and details of outstanding secured loans and its correlation with the the fixed assets pending installation which the assessee duly replied that secured loan outstanding raised by the company are for working capital loan being cash credit, demand loan and packing credit loan raised from the bank and fixed assets pending capitalization has no correlation with the secured loan raised by the assessee company and interest of is paid on secured loan raised for working capital purposes. The assessing officer passed the assessment order u/s 143(3) of the Act after applying his mind to replies submitted by the assessee company and now re-assessment proceedings initiated after four years from the end of relevant assessment is not permitted on account of change of opinion as provisio to Section 147 of the Act is applicable and hence, we hold that the CIT(A) has rightly quashed the notice dated 24.03.2008 issued u/s 148 - Decided in favour of assessee.
Issues Involved:
1. Nature of payment for processing contracts. 2. Depreciation on leased cars. 3. Rate of depreciation on cars leased and used by the assessee. 4. Depreciation on leased computers. 5. Depreciation on cars used for own business. 6. Disallowance of computer repairs and maintenance expenses. 7. Validity of notice issued under Section 148 of the Income Tax Act. Issue-wise Analysis: 1. Nature of Payment for Processing Contracts: The primary issue is whether the payment of Rs. 23,80,000 made to Citicorp Information Technology Services Limited (CITIL) for the purchase of processing contracts is capital or revenue in nature. The assessee claimed it as revenue expenditure under Section 37 of the Act, arguing that the contracts were acquired in the ordinary course of business. The CIT(A) held it as capital expenditure, classifying it as an intangible asset entitled to depreciation at 25%. The Tribunal, however, found that the payment was for acquiring service agreements, not a processing division, and should be treated as revenue expenditure, thus deleting the addition made by the assessing officer. 2. Depreciation on Leased Cars: The assessee claimed depreciation of Rs. 30,052,849 on cars leased to its associated concerns, which the assessing officer disallowed, treating the transactions as financial leases rather than operating leases. The CIT(A) upheld this view, relying on the Special Bench decision in Indus Ind Bank Ltd. The Tribunal, referencing the Supreme Court judgment in ICDS Ltd., concluded that the assessee was the owner of the cars and entitled to depreciation, thus deleting the disallowance. 3. Rate of Depreciation on Cars Leased and Used by the Assessee: The assessee argued for a 40% depreciation rate on cars purchased after 1.10.1998, claiming they were commercial vehicles. The assessing officer allowed only 20%, stating the cars were used for office purposes. The CIT(A) upheld this view. The Tribunal, however, agreed with the assessee, holding that the cars were commercial vehicles entitled to 40% depreciation as per the amended provisions of Section 32 of the Act. 4. Depreciation on Leased Computers: The assessee claimed depreciation of Rs. 3,288,246 on leased computers, which the assessing officer disallowed, treating the transactions as financial leases. The CIT(A) upheld this disallowance. The Tribunal, referencing the Supreme Court judgment in ICDS Ltd., concluded that the assessee was the owner of the computers and entitled to depreciation, thus deleting the disallowance. 5. Depreciation on Cars Used for Own Business: The assessee claimed 40% depreciation on cars purchased after 1.10.1998 for its own use. The assessing officer restricted this to 20%, and the CIT(A) upheld this view. The Tribunal held that the cars were commercial vehicles entitled to 40% depreciation, thus deleting the disallowance. 6. Disallowance of Computer Repairs and Maintenance Expenses: The assessing officer disallowed Rs. 30,00,000 out of Rs. 3,198,207 claimed for computer repairs and maintenance, considering it excessive. The CIT(A) restricted the disallowance to Rs. 4,40,000. The Tribunal found no defects in the books of accounts and allowed the full claim of the assessee, deleting the disallowance. 7. Validity of Notice Issued Under Section 148: The Revenue's appeal concerned the validity of a notice issued under Section 148 for the assessment year 2002-03. The CIT(A) quashed the notice, and the Tribunal upheld this decision, noting that the original assessment had duly considered the interest expenses, and the re-assessment was merely a change of opinion, which is not permissible under the law. Conclusion: The Tribunal allowed the appeals of the assessee and dismissed the appeal of the Revenue, providing detailed reasons for each decision, ensuring that the legal principles and factual findings were thoroughly examined and applied.
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