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TMI Blog2013 (9) TMI 450X X X X Extracts X X X X X X X X Extracts X X X X ..... ut trucks that it purchases. Therefore, on a combined reading of Section 2(13) and Section 2(24) the income derived from leasing of the trucks would be business income, or income derived in the course of business, and has been so assessed. Hence, it fulfills the second requirement of Section 32 viz. that the asset must be used in the course of business. See CIT Karnataka, Bangalore Vs. Shaan Finance (P) Ltd., Bangalore [1998 (3) TMI 8 - SUPREME COURT] and M/S I. C. D. S. LTD. VERSUS COMMISSIONER OF INCOME TAX. MYSORE 39.65 Crore on account of interest on tax free bonds, debentures and dividend income which has been claimed as exempt. It is also a fact that the Assessee while computing the total income has suo motu disallowed 6.32 Crore u/s 14A. AO worked out the disallowance under Section 14A at 36.68 Crore and after setting off disallowance made by the assessee, he disallowed 30.45 Crore. We find that before AO, Assessee has not raised the contention about no disallowance u/s 14A and therefore the AO had proceeded ahead on the basis of suo moto disallowance made by the Assessee. CIT(A) had deleted the addition to the extent of 25.35 Crore - matter with respect to Nil disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owability of a claim of deduction between the Assessee and dept. What is to be seen is whether the said claim made by the assessee was bona fide and whether all the material facts relevant thereto have been furnished and once it is so established, the assessee cannot be held liable for concealment penalty under s. 271(1) (c) of the Act. In the present case all the necessary facts were furnished by Assessee. In the case of CIT Vs. Reliance Petroproducts (2010 (3) TMI 80 - SUPREME COURT) the Hon. Apex Court has held that there making a claim which is not sustainable in law by itself will not amount to furnishing inaccurate particulars regarding the income of Assessee. In view of the totality of facts we are of the view that the addition does not call for levy of penalty under s. 271(1)(c) - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... me on the capacity of each wind energy generator, the Assessee was not entitled for surplus income on excess generation of power, Assessee was not to suffer any loss owing to lesser production or any other contingencies, the return of the Assessee on financing was granted by taking Interest Free Deposit, Assessee was not taking the responsibility of labour, repairs, taxes etc in running of the project. He also noted that the normal life of to wind energy generator was 20 years and the lease period adopted by the Assessee was only 10 years. He also disallowed the claim of the Assessee for the reason that the purchase of wind energy generators was in its name without land and power purchase agreement in its name with the concerned Electricity Board. He accordingly held that income from operation is shown as lease rental and not as income from generation of electricity. He therefore treated the entire transaction as financing and therefore disallowed the claim of depreciation of ₹ 11,01,60,000/-. Aggrieved by the order of AO, Assessee carried the matter before CIT(A). CIT(A) noted that the facts in the present year were similar to assessment year 2002-03 and thereafter upheld th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of wind mills stop operation due to agitation or due to change in the wind velocity resulting in short generation of power the revenue would be drastically and critically affected is contrary to the evidence. WIL has agreed to pay for the shortage vide clause 6A(i) proviso. Non receipt of deposit from WIL and non action for the lapse is a serious breach of the agreement itself." The assessee has not followed the agreement in its true meaning as the assessee has not taken any action for non-observance of various conditions in the agreement. Instead of taking action for the default in deposit by WIL as a violation of the agreement, the assessee is turning the same as a shield "that deposit is not received". "The owning of the WEG without the requisite land with abundant velocity of wind is of scrap value. This may be the reason for the alleged lessee B1L belonging to TVS group did not go for the purchase of the wind mills. On the contrary by joining in the agreement without any investment and/or responsibility BIL is getting the power at 60 Ps. less per unit." "viii) The decision in the case of Prakash Ind. Ltd. is not relevant for deciding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion made was only loan transaction and not genuine lease transaction and the A.O. was justified in disallowing the depreciation and the action of the A.O. is hereby confirmed." 5. Aggrieved by the order of CIT(A), the Assessee is now in appeal before us. 6. Before us, the learned A.R. at the outset submitted that the issue of depreciation on leased assets has now been settled and decided by Hon. Supreme Court in the case of ICDS Ltd vs. CIT & Anr (2013) 350 ITR 527 (SC). He also submitted the following the aforesaid decision of Hon. Apex Court, the Mumbai Tribunal on identical facts in the case of Development Credit Bank Ltd. vs. DCIT ITA No. 300/Ahd/2001 and 4892/Ahd/2003 has decided the issue in assessee's favour. The learned A.R. further submitted that the Assessee had entered into lease transaction in the normal course of business as the same was permissible by the Banking Regulation Act. He further submitted that the lease income earned by the Assessee is also disclosed in its Profit and Loss account. He also urged that in Assessee's own case for earlier assessment year the issue has been decided in its favour. He placed on record the order of the Tribunal. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retain the legal title against the rest of the world, it would be the owner of the asset in the eyes of law. Held, affirming the decision of the Tribunal, (i) that the assessee was a leasing company which leased out the trucks that it purchased. Therefore, on a combined reading of section 2(13) and (24) of the Act the income derived from leasing of the trucks would be business income, or income derived in the course of business, and had been so assessed. Hence, it fulfilled the require- ment of section 32 of the Act, that the asset must be used in the course of busi- ness. The assessee did use the vehicles in the course of its leasing business. The fact that the trucks themselves were not used by the assessee was irrelevant for the purpose of the section." 26. In the case of Development Credit Bank Ltd. the issue before Mumbai Tribunal was with respect to depreciation on assets given on lease. The Co- ordinate Bench of Tribunal decided the issue in favour of Assessee by holding as under: "28 We have heard the arguments of both the sides and we are of the view that cross appeals on the issue of allowance of depreciation in the current year have to be decided simultan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, i.e. the assessee in the instant case, the asset has left its corridors for being utilized, and in return, rent had been received by the assessee. The Hon. Bombay High Court in the case of Kotak Securities Ltd. has held that what is to be seen is that the asset has been given on lease and the lease rent has been received, given in that case, so far as lessor is concerned, the asset has been used. 34. After having examined all the transactions which have been impugned before us, we are of the opinion that the assessee is entitled to the claim of depreciation under all the three circumstances, i.e. sale lease back, genuineness of transaction and asset having being put to use. We, therefore, allow ground no. 1 the assessee's appeal and dismiss both the grounds of the department's appeal. 27. In view of the aforesaid facts, we are of the view that in view of the decision of H'ble Apex Court in the case of ICDS (supra) and the decision of Mumbai Tribunal in the case of Development Credit Bank Ltd, Assessee is eligible for depreciation and we thus delete the addition made by the Assessing Officer. Thus this ground of the Assessee is allowed. 9. Since the facts in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he submissions of the appellant and the case laws relied upon, I am of the opinion that the action of the Assessing Officer is not correct as regards disallowing interest expenses amount after allocating it to the investments for exempted income. The appellant has filed the details before the Assessing Officer admitting that only part of the interest bearing funds is used for investing in the investments giving tax exempted income. The interest cost is calculated at ₹ 2.2 Cr. which is offered for taxation. Hence the A.O. is not justified in further allocating the interest expenditure for this purpose disregarding the fact that the appellant has surplus funds. However as regards the other operating expenses are concerned, the appellant has not filed any details as to how much expenditure is to be apportioned for earning the exempted income. Therefore, proportionate expenditure has to be allocated out of the total operative expenditure for earning the exempt income under the provisions of Sec. 14A. This view is supported by the decision of ITAT Chennai Bench in the case of Southern Petro Chemicals Industries v. DCIT, 93 TTJ 181. As per this decision, the investment decisions ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the material on record. It is an undisputed fact that the Assessee has earned ₹ 39.65 Crore on account of interest on tax free bonds, debentures and dividend income which has been claimed as exempt. It is also a fact that the Assessee while computing the total income has suo motu disallowed ₹ 6.32 Crore u/s 14A. AO worked out the disallowance under Section 14A at ₹ 36.68 Crore and after setting off disallowance made by the assessee, he disallowed ₹ 30.45 Crore. We find that before AO, Assessee has not raised the contention about no disallowance u/s 14A and therefore the AO had proceeded ahead on the basis of suo moto disallowance made by the Assessee. CIT(A) had deleted the addition to the extent of ₹ 25.35 Crore. We further find that on identical facts for A.Y. 2003-04, (ITA No 2571/Ahd/2006), the Co-ordinate Bench of Tribunal had restricted the disallowance to that made by the Assessee by holding as under: 33. We have heard the rival contentions and perused the material on record. The undisputed facts are that during the year the assessee has earned interest of ₹ 17.45 crore on tax free bond and debentures as against which the assessee had s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of High Court, we are of the view that no disallowance of administrative expenses can be made. We accordingly direct for the deletion of the addition made by the AO and allow this ground of the assessee. 20. Before us, the learned A.R. has raised a new argument wherein it was submitted that even the suo motu disallowance made by the Assessee while computing the income should be deleted and for which he placed reliance the decision of Hon. Calcutta High Court and the decision of Supreme Court. We find that this ground was not taken by the assessee before A.O. and CIT(A). AO had proceeded on the basis of the suo-moto disallowance made by the Assessee. Thus the AO or CIT(A) did not had any opportunity to examine the aforesaid contention and therefore there is no finding on it either by the A.O. and CIT(A). In view of these facts, we are of the view that the matter with respect to Nil disallowance under 14A be remitted back to the file of AO for examining it afresh. Thus the matter is remitted to the file of AO and he is directed to admit the issue and decide the issue afresh on merits. as per law after considering the submissions made by the Assessee and after giving a reasonable op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue arose in earlier asst. year, i.e. 2002-03, wherein I have, vide order dated 18.11.2005, held after considering the decision of South Indian Bank Ltd. V. CIT, 262 ITR 579 (Ker.) DCIT V. Catholic Syrian Bank Ltd., 88 ITD 185 (Coch) (SB) & Karnataka Bank Ltd. V. ACIT, 78 TTJ 996 (Bang) as under:- "The actual bad debt written off would be limited to the excess amount of write off over the amount standing to the credit of the provision account created under cl. (viia) to sec. 36(1) allowed under cl.(viia) to section 36(1). Thus, it is clear from the decision of Cochin ITAT special bench that it is the provision made and allowed u/s Sec 36 (1) (viia) which has to be considered for restricting the deduction u/s 36 (1) (vii). The AO. has understood it and instead of restricting the disallowance of bad .debt u/s 36(1)(vii) by this provisions made and allowed U/s 36(1)(viia) amounting to ₹ 8.24 cr he has restricted it and disallowed by an amount of ₹ 59.03 Cr.plus 31.603 Cr. This is not correct and cannot be upheld. The provision made and allowed ui/s. 36(l)(viia) is although independent allowance, it will restrict the disallowance u/s. 36(l)(vii) by application of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial on record. We find that the Revenue in tax appeal no. 1077 to 1080/Ahd/2010 (for AY 1998- 99, 2000-01 & 2001-02) had preferred appeal before High Court against the order of Tribunal and the question raised before Hon. Gujarat High Court reads as under: "whether the appellate Tribunal is right in law and on facts in holding that for the purpose of section 36(1)(vii) only the closing credit balance in the previous account of the earlier years is to be considered. Despite the provision of section 36(1)(vii) of the Act?" The Hon. Guj. H. C. held as under:- 15. In the present case, however, the question of method of operation of proviso to section 36(l) (vii) arises. Such proviso as noted, provides that in case of an assessee to which clause (viia) applies, the amount of deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for account made under that clause. The revenue's contention is that by virtue of such proviso, the claim of the assessee for deduction for debts write off, should be reduced by the closing balance of the assessee in his account for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son to entertain the revenue's appeals. As already noted, the statutory provision is silent on the precise method of working out the deduction. It is by now well-settled that such circulars issued by the Board in exercise of its statutory powers under section 119(2) of the Act, may have the effect of relaxing the rigors of a statutory provision. In the case of Catholic Syrian Bank Ltd. (supra) itself, the Apex Court touched on the effect of the circular issued by the Board. It was observed as under:- "Now, we shall proceed to examine the effect of the circulars which are in force and are issued by the Central Board of Direct Taxes (for short, "the Board") in exercise the power vested in it under section 119 of the Act. Circulars can be issued by the Board to explain or tone down the rigours of law and to ensure fair enforcement of its provisions. These circulars have the force of law and are binding on the income-tax authorities, though they cannot be enforced adversely against the assessee. Normally, these circulars cannot be ignored. A circular may not override or detract from the provisions of the Act but it can seek to mitigate the rigour of a particular pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance of fraud expenses. 21. Assessing Officer noticed that the Assessee has claimed loss on account of fraud expenses amounting to ₹ 52.31lacs. Assessee submitted the details to the extent of ₹ 29.51 lacs but no details were furnished with respect to the remaining amount of ₹ 22.80 lacs as according to the Assessee they consisted of smaller amounts pertaining to retail and demat accounts and the numbers were very high. The Assessing Officer did not accept the contention of the Assessee. In the absence of details of ₹ 22.80 lacs, he considered the same has not allowable. Aggrieved by the order of Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) confirmed the order of Assessing Officer by holding as under:- "7.2 During the appellate proceedings, the appellant submitted that these are genuine losses and should be allowed. The appellant filed copy of newspaper article showing that the same person Shri G.N. Sharma has done fraud at various other places, hence it should be allowed. However no details or any other evidence were submitted in support of this claim of loss. Hence, it is held that the Assessing Officer was justified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al in ITA No 2572/Ahd/2006 hereinabove has been has been discussed and decided in favour of Assessee, we therefore for similar reasons dismiss this ground of the Revenue. 28. Before us, both the parties submitted that Ground No 2 is connected with Ground No 3 of Assessee's appeal in ITA No. 2572/A/2006 and the submissions made by them while arguing the ground in Assessee's appeal are equally applicable to the present grounds. 29. We have heard the rival submissions and perused the material on record. Since ground no. 2 of the present Revenue's appeal are connected with ground no. 3. of Assessee's appeal in ITA No. 2572/Ahd/2006 and since Ground No 2 of Assessee's appeal in ITA No 2572/Ahd/2006 hereinabove has been has been discussed and decided in favour of Assessee, we therefore for similar reasons dismiss this ground of the Revenue. Ground no. 3 is with respect to compensation expenses for termination of rent agreement. 30. During the course of Assessment proceedings, AO noticed that Assessee had taken premises at Baroda known as Arundeep Complex on "Leave and Licence" basis on 1.12.1996 from one Shri Dilip Kumar Patel for the period of 5 years w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce or wisdom of judgment after businessman:- i. CIT v Dhanrajgirji Raja Narasingirji, 191 ITR 544....50(SC) ii. CIT v Walchand & Co. (P) Ltd., 65 ITR 381...385 (SC) and J.K. Woolen CIT, 72 ITR 612 (SC). iii. F.E. Dinshaw Ltd. V. CIT, 36 ITR 114... 120 (Bom) iv. CIT v Vijayalakshmi Mills Ltd., 94 ITR 173... 178...179 (MAD). v. CIT v Dalmia Cement (Bharat) Ltd. (2001) 254 ITR 377 (Del) vi. Extracts from the law and practice of income tax by Kanga, Palkhiwala and Vyas-Volume I- Ninth Edition Page 899. 6.3 I have carefully considered the facts of the case and the submissions along with the case laws relied upon. I am in agreement with the appellant's view. It is a fact that the expenditure is genuine and it was paid to the landlord as compensation for vacating the premises. It was necessary to avoid the litigation cost. If any expenditure is genuine and incurred in the course of business, its quantum or sufficiency cannot be examined by the Assessing Officer, unless the payment is made to a related concern. Therefore, in view of the above discussion and by following the case laws as relied upon by the appellant, I hold that there is no justification on the part of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enerators and therefore levied penalty on it at 300% of the tax sought to be evaded (Rs. 24,09,75,000/-). 37. Aggrieved by the order of AO, Assessee carried the matter before CIT(A). CIT(A) granted partial relief by reducing the penalty from 300% to 100%. Assessee is aggrieved by the order of CIT(A) because he has retained the penalty and on the other hand the Revenue is aggrieved by the action of CIT(A) in reducing penalty from 300% to 100%. 38. Before us, the learned A.R. submitted that Assessee had disclosed and made known to the Assessing Officer all the particulars and facts material to the computation of income accurately. He further submitted that the there is no finding of concealment of any primary facts and or furnishing of inaccurate particulars of income and that the explanation given by the Assessee is false. He further submitted that each of the claims made in the return was bonafide and based on honest understanding of law or judicial precedents as also was made under the guidance of professional. He further submitted that the impugned disallowance involved a legal proposition on understanding or interpretation whereof two views were possible. He further submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % (Rs 12,10,13,550/-/- ) by AO. Assessee is aggrieved by the levy of penalty whereas Revenue is aggrieved by the order of CIT(A) dated 5.10.2007 whereby he reduced the penalty at 100% (Rs.4,03,37,850/-). Since the issue is common, both the appeals are considered together for disposal for the sake of convenience. 42. While passing the order under Section 143(3) for A.Y. 2004-05,AO apart from other disallowances, AO had made disallowance on account of fraud expenses (Rs 22,80,000/-) and depreciation on wind energy generators of ₹ 11,01,60,000/-. The aforesaid 2 disallowances was also sustained by CIT(A). Assessing Officer was therefore of the view that the assessee has within the meaning of s. 271(1)(c) read with explanations has knowingly committed the default of furnishing inaccurate particulars of income and therefore levied penalty @300% of the tax sought to be evaded (Rs 12,10,13,550/-). 43. Aggrieved by the order of AO, Assessee carried the matter before CIT(A). CIT(A) granted partial relief by reducing the penalty from 300% to 100%. Assessee is aggrieved by the order of CIT(A) because he has retained the penalty and on the other hand the Revenue is aggrieved by the act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on which the penalty has been levied itself has been deleted, the question of levy of penalty under Section 271(1)(c) on such disallowance therefore does not arise, 46. The other addition on which the penalty is levied is on fraud expenses. The penalty under s. 271(1)(c) of the Act is leviable if the AO is satisfied in the course of any proceedings under the Act that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. It is well settled that assessment proceedings and penalty proceedings are separate and distinct and the finding in the assessment proceedings cannot be regarded as conclusive for the purposes of the penalty proceedings. 47. The necessary ingredients for attracting Expln. 1 to s. 271(1)(c) are that : (i) the person fails to offer the explanation, or (ii) he offers the explanation which is found by the AO or the CIT(A) or the CIT to be false, or (iii) the person offers explanation which he is not able to substantiate and fails to prove that such explanation is bonafide and that all the facts relating to the same have been disclosed by him. If the case of any assessee falls in any of these three categories, then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e declared by the assessee was accepted. 51. Later, on verification of the assessment records and from the annual accounts for the year ended 31.3.2007, CIT noted that Assessee had contributed ₹ 9.14 crore (Rs 9,13,67,379) to approved superannuation fund but in the return of Fringe Benefit Tax (FBT), it had shown only ₹ 22,36,132 as "contribution towards approved superannuation fund for employees". He was of the view that u/s 115W(1)(c) of the Act, any contribution by the employer to any superannuation fund for the employees attract levy of fringe benefit tax on 100% of such contribution. He was thus of the view that AO had not made any addition to FBT and therefore ₹ 8,91,31,247/- has escaped assessment resulting into short levy of FBT alongwith interest to the tune of ₹ 3,99,01,995/-. and accordingly the order of the AO was erroneous and prejudicial to the interest of Revenue. CIT issued show cause notice on 13.12.2011 in response to which the Assessee interalia submitted that the s. 115W(1)(c) was amended by Finance Bill 2006 wef AY 2007-08 and according to which only contribution by an employer to an approved superannuation fund in excess of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S (1) For the purposes of this Chapter, "fringe benefits" means any consideration for employment provided by way of- (a) .....; (b) ......; (c) any contribution by the employer to an approved superannuation fund for employees; and SECTION 115WC-VALUE OF FRINGE BENEFITS. (1) For the purposes of this Chapter, the value of fringe benefits shall be the aggregate of the following namely:- (a) ..... ; (b) the amount of contribution, referred to in clause (c) of sub-section (1) of section 115WB, which exceeds one lakh rupees in respect of each employee; 55. On reading the relevant provisions of section 115WB and 115WC it can be seen that the value of contribution by an employer to an approved superannuation fund for employees in excess of Rs one lac in respect of each employee is chargeable to FBT. Before us, the Ld.A.R. has placed on record the total contribution in superannuation fund to be ₹ 9,13,67,379 which includes list of 29 employees where the contribution in superannuation fund was more than ₹ 1 lac and their aggregate amount was ₹ 51,36,132. From the aforesaid amount, the Assessee had reduced ₹ 29 lacs, being the exemption limit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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