TMI Blog2015 (11) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Commissioner of Income Tax(Appeals)-20,Mumbai(Hereinafter called the CIT(A)) for assessment years 1999-2000, 2000-01, 2001-02 and 2002-03. Common grounds are raised by the assessee company in all the three appeals filed by the assessee company. We are first taking the appeal of the assessee company for the assessment year 1999-2000. The Grounds of appeal raised for the assessment year 1999-2000 in memo of appeal filed reads as under:- (1)The Commissioner of Income Tax (Appeals)-20, Mumbai(CIT(A)) erred on facts and in law in holding that the payment of ₹ 23,80,000 made to Citicorp Information Technology Services Limited(CITIL) for the purchase of processing contracts was capital in nature having failed to appreciate that these contracts were acquired in the ordinary course of business and therefore the expenses incurred are revenue nature allowable under section 37 of the Act. (2) The CIT(A) erred on facts and in law in disallowing depreciation of ₹ 30,052,849/- on cars given on lease , treating them to be in the nature of Assessed By Shri P.J. Paradiwalla Shri Niraj Sheth Revenue By Shri Shrikant Namdeo Date of hearing 12.08.2015 Date of pronouncement 30. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This amount was amortized over the period of 25 months being balance unexpired period of contract. The assessee company duly filed the copy of assignment agreement effective from 1st August 1998 with the assessing officer. The assessing officer held that no where it is mentioned in the contract that the said amount is paid to CITIL for surrendering their processing division. The processing service division has entered into several contracts with its clients which were secured by CITIL in its ordinary course of business. The assessee company has also taken over rights and obligations under the contract. The assessing officer held that the said amount was not mentioned in the agreement executed between the assessee company and CITIL. The assessing officer held that the amount of ₹ 40,80,000/- paid for the period of 12 months out of total payment of ₹ 85,00,000 paid for 25 months is to be held as capital expenditure being the acquisition of processing division of the CITIL and disallowed as revenue expenditure as claimed by the assessee company. 5. Aggrieved by the orders of the assessing officer, the assessee company filed the first appeal with the CIT(A) and contende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income earning asset in the form of processing service division has been acquired by the assessee company. The CIT(A) held that this is incurred for purchase of processing contract which is capital in nature being intangible asset to be classified as business or commercial rights and entitled to depreciation at the rate of 25% . 7. Aggrieved by the orders of the CIT(A) , the assessee company is in appeal before us and reiterated the submission as made before the authorities below. The assessee company submitted that the assessee company has acquired these contracts by assignment agreement effective from 01.08.1998 whereby the CITIL has assigned the service agreements between CITI Bank and CITIL in the form of cash management, product agreement, custodial service agreement, trade finance agreement vide assignment of agreement effective from 01.08.1998 which was produced before us also. The assessee company also produced before us copy of Director s report of the assessee company for the year ending 30.06.1999, whereby it is mentioned in the Director s Report dated 25th September 1999 addressed to the Shareholders of the company that the assessee company during the financial year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee 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 fiel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the lessor will also not get any deduction of principle amount out of the lease rental charges credited in accounts and shown as income and hence the depreciation of ₹ 3,00,52,849/- claimed on the car leased is disallowed and added to the income of the assessee company. 12.Aggrieved by the orders of assessing officer, the assessee company carried the matter in appeal before the CIT(A) and contended that the leasing was one of the main business activity of the assessee company as per the object clause in Memorandum of Association of the assessee company. The assessee company contended that the assessee company is carrying out leasing activity for several years which is allowed by the Revenue and it is the first time in the assessment year 1999-00, the depreciation on vehicle is disallowed by the Revenue on the allegation that the transaction is a financing arrangement to avail the benefit of depreciation on assets given on lease and also to enable the associated concerns to take benefit by way of claim for lease rent paid as well as depreciation on such assets. The assessee company submitted that they are the owners of assets which have been leased to its associate concerns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed by the Revenue. The assessee company stated that these cars are provided to employee s and at the end of the period cars are sold to the employees. The assessee company relied upon the Judgment of Hon ble Supreme Court in the case of I.C.D.S. Ltd. v. CIT (2013)350 ITR 527,(2013) 29 taxmann.com 129 (SC). The assessee company also relied on the Judgment of Mumbai Bench of Tribunal in the case of Development Credit Bank Ltd. v. DCIT (2014)61 SOT 53 (Mum) and also on the Judgment of Mumbai Bench of Tribunal in the case of Sicom Ltd. Vs. JCIT [(2013)40 taxmann.com 469]. 16.The Ld. DR on the other hand, contended that these are financial lease and relied upon the orders of authorities below. 17.We have considered the rival submissions and carefully perused the relevant material on record. We have observed 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s light motor vehicles . The assessee company submitted that the assessee company is engaged in the business of giving vehicles on lease in the ordinary course of the assessee company s business to the associated concern which are used for office purposes by the associated concerns . The assessee company contended that these are commercial vehicle and depreciation at the rate of 40% is rightly claimed for the vehicles purchased after 1.10.1998 but before the 1st day of April 1999 , and , is put to use before the 1st day of April 1999. The CIT(A) held that since the lease transaction of cars is a financial lease and the assessee is not the owner of these leased vehicles and hence , the assessee company is not entitled to depreciation. 21.Aggrieved by the decision of the CIT(A), the assessee company is in appeal before us. 22.Before us, the assessee company reiterated the submissions as made before the lower authorities. The assessee company relied upon the decision of jurisdictional Hon ble High Court of Bombay in ITA no 828 of 2010 in CIT v. Birla Global Asset Finance Co. Limited and submitted that the instant case is squarely covered by the said decision. The assessee com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the nature of financing and not leasing transactions.. 26.The assessing officer held that these leased transaction is nothing but financial transaction between the assessee company and the parties by whom the computers is purchased and depreciation on computer leased is also disallowed and hence ₹ 32,88,246 was added to the income of the assessee company. 27.Aggrieved by the orders of the assessing officer, the assessee company carried the matter in appeal before the CIT(A) and submitted that leasing was one of the main business activities of the assessee company as evidenced by the objects clause in the Memorandum of Association of the assessee company. The assessee company submitted that the assessee company is carrying out leasing activity for the last several years and only for the first time in the assessment year 1999-2000, depreciation on computers was disallowed on the alleged ground that the transaction is a financing arrangement to avail the benefit of depreciation on assets given on lease. The assessee company placed on records evidence regarding the fact that the Revenue has allowed depreciation on assets given on lease upto assessment year 1998-99. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation, 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. computers which are leased to parties . The assessee company by giving these computers 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 (Supra) is directly applicable in the facts and circumstances of the present case and the assessee company has rightly claimed the depreciation on the computers leased by the assessee company. Hence, in view of the above, we hold 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. We order accordingly. 32. Ground no. 5 disallowance of depreciation of ₹ 64,708/- claimed on cars held for own use which were purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9, depreciation is allowable @ 40% as per entry III(2)(iia) of part A of Appendix I, applicable even if the cars are used for own office purposes as the commercial vehicles include light motor vehicle as per definition under Motor Vehicles Act,1988 and there is no stipulation that the same is to be given on hire , the assessee company is entitled for higher depreciation @40% on the said cars 37.The Ld. DR relied upon the order of authorities below. 38.We have heard both the parties and considered the relevant material on record. We hold 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 @ 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was submitted that it would be incorrect to determine the reasonability of the expense by linking the same to the cost of computers. Further, it was also submitted that since the above expenses have been incurred to maximize client servicing abilities and to ensure the flow of revenue, the same should be fully allowable as a deduction. It was submitted that to enable the assessee company to provide timely services to their customers, they in turn have to ensure that their computer systems operate at the optimum capacity and for this purpose it is essential to enter into contract with various parties so that the equipment is serviced at regular intervals and any corrective action required to be taken is undertaken in the shortest possible time. After considering the submissions of the assessee company, the CIT(A) restricted the disallowance to ₹ 4,40,000/- after holding that LAN administrative charges of ₹ 9,68,002/-ought to be allowed as a deduction being in the nature of networking maintenance charges which is not computer maintenance charges and of the balance ₹ 22,00,000/- , the CIT(A) held that it will be fair to restrict the disallowance to 20% of the repa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er has taken the value of computer wrongly. The correct amount included in the gross block of computers, stand at ₹ 84,73,945/- . Further, it was also submitted that since the above expenses have been incurred to maximize client servicing abilities and to ensure the flow of revenue, the same should be fully allowable as a deduction and not linked to the cost of computers. It was submitted that to enable the assessee company to provide timely services to their customers, they in turn have to ensure that their computer systems operate at the optimum capacity and for this purpose it is essential to enter into contract with various parties so that the equipment is serviced at regular intervals and any corrective action required to be taken is undertaken in the shortest possible time. 44.Ld. DR relied upon the orders of authorities below. 45.We have considered the rival submission and perused the relevant material on record. We have observed that the assessee company has duly incurred these expenses of ₹ 31,98,307/- and no defect has been pointed out by the assessing Officer or by the CIT(A) in the books of account maintained by the assessee company nor the books of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act which was quashed by the CIT(A). 49. Before us, the Ld. DR contended that the CIT(A) has illegally quashed the notice dated 24th March 2008 u/s 148 of the Act . He drew our attention to the reasons recorded for reopening of the assessment for initiating proceedings u/s 147 of the Act which are primarily concerned with fixed assets pending installation as existing in the books of accounts of the assessee company of ₹ 1,12,55,903/- and the corresponding secured loan of ₹ 1,31,26,833/-existing in the books of accounts and the allegation by the assessing officer that since the afore-stated secured loans were not utilized by the assessee company for even 1 day as afore-stated fixed assets are under installation, the interest expenses of ₹ 15,83,080/- claimed by the assessee company was not used for business purposes and the same cannot be treated as business expenditure and needed to be disallowed. He stated that the assessee has not duly replied to the query raised by the assessing officer during original assessment u/s 143(3) of the Act whereby the assessee company has not furnished all necessary facts with respect to the details of utility of loans raised by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee company made statement before us that the afore-stated interest is paid by the assessee company on loans raised for working capital purposes and no portion of loans were raised for funding fixed assets which are pending installation. The assessee company submitted that the notice u/s 148 is dated 24-03-2008 which is beyond the period of 4 years from the end of assessment year and the provisio to Section 147 of the Act is applicable and no action can be taken u/s 147 of the Act unless the income chargeable to tax has escaped assessment due to failure on the part of the assessee company to make a return u/s 139 of the Act or in response to notice u/s 142(1) of the Act or Section 148 or there is a failure on the part of the assessee company to fully and truly disclose all material facts necessary for its assessment , for that assessment year. The assessee company submitted that the assessing officer has duly raised the query with respect to the interest paid on secured loans raised by the assessee company which was duly replied by the assessee company during course of original assessment proceedings u/s 143(3) read with Section 143(2) and hence notice u/s 148 dated 24th March ..... 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