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TMI Blog2012 (6) TMI 688X X X X Extracts X X X X X X X X Extracts X X X X ..... taken on lease. 3. That the CIT(A) has grossly erred in facts and law by upholding the order of the AO in disallowing preliminary expenses amounting to Rs. 31,000/- alleging that complete details/explanation were not provided during the course of assessment proceedings. 4. That the CIT(A) has grossly erred in facts and law by upholding the order of the AO in disallowing contribution made towards Federation of Indian Mining Industries building fund amounting to Rs. 50 lacs alleging that the same has not been incurred wholly and exclusively for the purpose of business. The above grounds are mutually exclusive and without prejudice to each other. The appellant craves leave to add, alter, amend, modify or withdraw any one or more of the above grounds of appeal. 2. Adverting first to ground nos.2 & 2.1 in the appeal, facts, in brief, as per relevant orders are that return declaring income of Rs. 2,83,48,467/- filed on 01.11.2007 by the assessee, engaged in providing services for the development of mining sector in India, after being processed u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act), was selected for scrutiny with the service of a notice issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1969) 72 ITR 137(Mad) affirmed in 86 ITR 549 (SC); Southern Vs. Borax Consolidated Ltd. (1942) 10 ITR (Supp) 1, 5 (KB), the AO concluded that the principal payments towards financial lease being for acquisition of assets, are capital in nature and, therefore, could not be allowed as revenue expenditure. 3. On appeal, the ld. CIT(A) upheld the findings of the AO while rejecting claim for depreciation on the leased assets, in the following terms: "4.2 I have carefully considered the assessment order and the submission made by the ld. AR. The facts of the case are that during the relevant assessment year the appellant had taken certain vehicles on financial lease and had capitalized these in its books of account in accordance with the requirement of AS 19 on leases issued by the Institute of Chartered Accountants of India which requires capitalization of assets acquired by the lessee in the financial lease agreement. The AO noted that the assessee had deducted an amount of Rs. 11,03,660/- being principal payments towards financial lease and disallowed this expense on the basis that it has been incurred for the creation of a capital asset and is for the enduring benefit of the conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f decision dated 14.3.2012 in IndusInd Bank Limited vs. Addl. CIT in ITA nos.6566/Mum./2002 for the AY 1998-99 & ITA no.606/Mum./2003 for the AY 1999-2000. 5. On the other hand, the ld. DR supported the findings of the ld. CIT(A), relying, inter alia, on the decision in the case of J.M. Shares and Stock Brokers Vs. DCIT (2009) 311 ITR (A.T.) 0115. 6. We have heard both the parties and gone through the facts of the case as also the decisions relied upon by both the sides. Indisputably, the assessee claimed deduction of Rs. 11,03,660/- towards principal amount payable under the lease agreement entered into with M/s LeasePlan India Ltd.[LPIN] on 18.4.2006 for taking on lease certain vehicles for its use. Admittedly, vehicles have been taken under a finance lease arrangement and not under operational lease. In this connection clause 1(f) of notes to the accounts [pg. 22 of the PB] reads as under:- "1(f) Leases "Assets acquired under leases where the Company has substantially all the risks and rewards of ownership, are classified as finance leases. Such leases are capitalized at the inception of the lease at lower of the fair value or the present value of the minimum lease p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and comply with all statutory and other requirements of law, rules, regulations or directions applicable to use and operation of the vehicle in that behalf. The client shall not do or omit to do, cause to be done any act or thing by which the warranties and performance guarantees given by the manufacturer would be invalidated or become unenforceable, wholly or partly. 10.3 Not transfer, assign or otherwise dispose of or purport to transfer, assign or dispose of LPIN's rights or obligations or interest hereunder by way of mortgage, charge, sublease, sale or other assignment, hypothecation, pledge, hire, encumbrance, license or otherwise in any manner part with the possession of the vehicle or any part thereof or allow or purport to do or allow or create any lien, charge, attachment or other claim of whatsoever nature on the vehicle or any part thereof. 10.4 indemnify and keep indemnified LPIN, at all times, against any loss or seizure of the vehicle under distress, execution or other legal process or destruction or damage to the vehicle by fire, accident or other cause, from any claim or demand arising out of the use/handling of the vehicle, or any risk or liability for death or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments and/or to give notice to the appropriate Regional Transport Authority for effecting transfer of the said vehicles at the end of the lease period. 10.8 authorise LPIN to fill in, alter, amend, sign or complete such forms, documents or papers relating to the regional transport office or the insurance companies and to give full and complete effect thereof." 6.2 Article 12 of the agreement, concerning sale and lease ,stipulates as under: Sale and lease back "Article 12 12.1 In case of sale and lease back of vehicles, quotation will be provided by LPIN based on information provided by the client as per LIPN requirement. Client will provide all the required documents as requested by LPIN along with the order confirmation. 12.2 If any of the information/documents provided by the client is found to be incorrect, or if LPIN discovers that the condition of the vehicle is such that it requires resetting of either the residual value or the maintenance budget, LPIN reserves the right to recalculate the lease rentals according to the correct figures and/or condition. If the particular vehicle shall cease and the client will need to pay to LPIN the outstanding book value and the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement with LPIN, we are of the view that the assessee is not entitled to deduction of payment of principal amount under the aforesaid financing arrangement. The ld. AR on behalf of the assessee did not place any material before us, controverting the aforesaid findings recorded by the ld. CIT(A) and various clauses of the agreement and facts narrated before us stare in the face of the assessee. Accordingly, we are not inclined to interfere with the findings of the ld. CIT(A) in upholding disallowance of claim for deduction of Rs. 11,03,660/- towards payment of principal amount. 7. As regards alternate claim of depreciation, no doubt in terms of the clause 2..2 (ii) & (iii) of the agreement the registration of the vehicle and insurance is in the name of the lessee, not even a whisper has been made before us by the ld. AR in the light of terms and condition stipulated in Article 10 of the agreement, particularly clause 10.1. & 10.5, whereunder, the assessee is not entitled to claim any right, title or interest in the vehicle and/or parts, components thereof other than that of a lessee or contest LPIN's sole and exclusive ownership thereof. In terms clause 10.5 of the agreement, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D. The right of the Assessing Officer to ask for details is paramount and it cannot be denied as he has to scrutinize the underlying expenses. Similar issue on the same ground, for assessment year 2006-07, has already been upheld by my predecessor ld. CIT(A). This ground of appeal is accordingly dismissed and /the addition of Rs. 31,000/- is upheld." 11. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A).Neither the ld. AR on behalf of the assessee nor the ld. DR made any submissions before us on this ground. 12. We have gone through the facts of the case. Indisputably, the assessee failed to submit necessary information required by the AO in support of the claim of expenses written off while in the preceding assessment year, similar disallowance has been upheld by the ld. CIT(A). Since the ld. AR did not place any material before us controverting the aforesaid findings of the ld. CIT(A) so as to enable us to take a different view in the matter, we are not inclined to interfere. Therefore, ground no.3 in the appeal is dismissed. 13. Ground no.4 in the appeal relates to disallowance of an amount of Rs. 50 lacs on account of contribution towar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have heard both the parties and gone through the facts of the case as also the aforesaid decisions relied upon by the ld. AR.. As is apparent from the aforesaid facts, an amount of Rs. 50,00,000/- has been contributed towards building fund of Federation of Indian Mineral Industries, the assessee being one of the members of the said Federation. The ld. CIT(A) treated the amount in the nature of donation and capital in nature. Whether the amount is revenue or capital in nature, Hon'ble Apex Court in K.T.M.T.M. Abdul Kayoom v. CIT, 44 ITR 689 (SC) held that each case depends on its own facts and close similarity between one case and another is not enough, even a significant detail may alter the entire aspect. It was observed that what is decisive is the nature of business, the nature of the expenditure, the nature of the right acquired, and their relation inter se, and this is the only key to resolve the issue in the light of the general principles, which are followed in such cases. In Sri Venkata Satyanarayana Rice Mill Contractors Co. v. CIT, 223 ITR 101(SC), Hon'ble Apex Court held that the correct test is that of commercial expediency. In Chemicals & Plastics India Ltd.(supra), Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed an all-India federation, a non-profit corporate body under the Companies Act, 1956 to promote the interests of mining, mineral processing, metal making and other mineral-based industries and to attend to the problems faced by them in lease grants, renewals, tenures, production, taxation, trade, exports, labour, etc. The Federation envelopes in its fold mining, mineral processing, metal making, cement and other mineral-derived industries as well as granite, stone, marble and slate industries - private, joint and public sectors of the country. It represents the entire non-fuel mining and mineral processing activities of the nation. Apparently, the expenditure incurred by the assessee by way of contribution towards building fund of the said federation, is for commercial consideration and it is not incurred for the purpose of securing any capital assets. In the light of view taken in the aforesaid decisions, we are of the opinion that contribution towards building fund of Federation of Indian Mineral Industries, of which the assessee is a member, has been incurred with a view to obtaining a commercial advantage and is allowable as revenue expenditure. In view thereof, ground no. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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