2018 (9) TMI 1749 - AT - Income Tax

Claim of depreciation on leased assets i.e. milk cans - Held that - Admittedly, it is the assessee who had claimed depreciation, therefore, it was incumbent upon the assessee to prove with plausible evidence that it owned certain assets which had been leased and fetching rent. In the present case, enquiry made by the revenue revealed that the entity where from such assets were purchased was not having capacity to manufacture. Entire claim was found to be bogus. It is further established by the revenue that purchase consideration was routed back, hence, the entire claim proved to be a colourable device. Under these facts, the submission of the assessee is devoid of any merit. Such claim cannot be allowed. The ground Nos.4 to 6 are dismissed. Deferred revenue expenditure - Held that - Such a claim cannot be entertained both in facts and in law, during the year under consideration as the fact whether such expenses were genuinely incurred were never examined in the relevant assessment year and looking to the state of affairs of the appellant company in absence of proper scrutiny and examination of such claim of expenses in the relevant assessment year, such claim cannot be accepted in the present assessment year, more so when such claim was not pressed for deduction for 1/5th of expenses in the previous assessment year. The appellant apart from furnishing break up of expenses has failed to establish admissibility of 20% of such expenses during the year under consideration, as in the then prevailing position of law the concept of deferred revenue expenses was not recognised. The claim has to be examined in view of the law as applicable in the relevant assessment year and on that count such claim fails. Addition in respect of interest u/s 220(2) - Held that - In view of the CBDT circular No.334 dated 3.4.1982 and the decision of the coordinate bench in the case of M/s. Narad Investment & Trading Pvt. Ltd. Vs. DCIT 2011 (10) TMI 663 - ITAT MUMBAI , we direct the assessing officer to charge interest from the date when fresh assessment is made. This ground of the assessee s appeal is allowed. Lease rent income treated as bogus - Held that - After considering the totality of the facts and materials placed before us, we do not find any infirmity in the order passed by the CIT(A) as the assessing officer itself has considered the lease transaction as bogus and disallowed the depreciation. Under these facts, the revenue cannot now claim that the assessee has earned income from lease rent. This ground of the revenue s appeal is dismissed. Exclusion of merchant banking income from the total income assessed by him - Held that - A.O., in these circumstances with the facts and evidences on record, couild not and should not have drawn adverse inference on account of non delivery of fresh summons issued after 10 years of the end of relevant financial year. In fact, the documents on record clearly establish that such company was in existence at the relevant period of time and even assessment u/s 143(3) was completed for the same assessment year 1996-97. The Merchant banking income offered at ₹ 27 lacs being not a real and genuine income accrued to the income in terms of MOU and other evidences on record and could not be validly has been held by Hon ble Supreme Court in the case of Bokaro Steel 1998 (12) TMI 4 - SUPREME COURT , Godhra Electricity Co. Ltd. 1997 (4) TMI 4 - SUPREME COURT and Shoorji Vallabhdas & Co 1962 (3) TMI 6 - SUPREME COURT as noted above. Accordingly, A.O. is directed to exclude the Merchant banking income at ₹ 27 lacs from the total income assessed by him

Issues Involved:

1. Validity of fresh assessment and limitation under Section 153(2A) of the Income Tax Act, 1961.
2. Disallowance of 100% depreciation on leased assets (milk cans).
3. Disallowance of deferred revenue expenses.
4. Levy of interest under Section 220(2) of the Income Tax Act, 1961.
5. Deletion of lease rent income.
6. Deletion of addition of certain business expenditures.
7. Exclusion of merchant banking income.

Issue-wise Detailed Analysis:

1. Validity of Fresh Assessment and Limitation under Section 153(2A):

The assessee contended that the CIT(A) erred in not deciding the validity of the fresh assessment considering the directions of the Supreme Court and the limitation period under Section 153(2A). The Tribunal had previously quashed the assessment on the grounds of legality, but the High Court upheld the Tribunal's order for fresh adjudication. The CIT(A) and Tribunal found that the fresh assessment was not barred by limitation and upheld the assessment order.

2. Disallowance of 100% Depreciation on Leased Assets (Milk Cans):

The assessee argued that the authorities unjustly disallowed the depreciation claim on leased assets, asserting that the transactions were genuine. However, the Tribunal found that the entity purportedly selling the assets lacked the capacity to manufacture them, and the transactions were deemed bogus. The Tribunal upheld the disallowance, emphasizing that the onus was on the assessee to prove the genuineness of the transactions, which they failed to do.

3. Disallowance of Deferred Revenue Expenses:

The assessee claimed disallowance of 20% of deferred revenue expenses, arguing it was contrary to the ITAT's directions. The CIT(A) observed that the expenses were not allowed in the preceding year and required verification of their genuineness. The Tribunal remanded the issue to the assessing officer for verification, directing allowance if the expenses were genuinely incurred for business purposes.

4. Levy of Interest under Section 220(2):

The assessee contested the levy of interest from the date of the original assessment order, citing a CBDT circular and a coordinate bench decision. The Tribunal agreed with the assessee, directing the assessing officer to charge interest only from the date of the fresh assessment order, aligning with the CBDT circular and judicial precedents.

5. Deletion of Lease Rent Income:

The revenue appealed against the deletion of lease rent income, arguing that the disallowance of depreciation should not affect the lease rent income. The Tribunal upheld the CIT(A)'s decision, stating that if the lease transactions were bogus, the corresponding lease rent could not be considered real income. Thus, the deletion of lease rent income was justified.

6. Deletion of Addition of Certain Business Expenditures:

The revenue challenged the deletion of an addition related to business expenditures. The CIT(A) found that the expenses were genuinely incurred for business purposes and should be allowed, despite being capitalized in the books. The Tribunal upheld this finding, noting that the revenue did not provide contradictory evidence.

7. Exclusion of Merchant Banking Income:

The revenue contested the exclusion of merchant banking income. The CIT(A) found that the income was not real, as the conditions of the MOU were not fulfilled, and the corresponding fees were not received or claimed. The Tribunal upheld the CIT(A)'s decision, emphasizing that real income should not be taxed based on mere accounting entries.

Conclusion:

The Tribunal partly allowed the assessee's appeal for statistical purposes, remanding certain issues for verification, and dismissed the revenue's appeal, upholding the CIT(A)'s findings on the deletion of lease rent income, business expenditures, and exclusion of merchant banking income. The Tribunal's decisions were based on thorough examination of facts, adherence to legal principles, and reliance on judicial precedents.

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