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Bombay Dyeing & Mfg. Co. Ltd., DCIT Central Circle-2 (1) Mumbai Versus DCIT Central Circle-8 Mumbai, Bombay Dyeing & Mfg. Co. Ltd

2016 (4) TMI 913 - ITAT MUMBAI

Depreciation on boiler - boiler purchased from and leased back to Andhra Pradesh State Electricity Board (APSEB) - Held that:- The impugned sale and lease back transactions is a genuine transaction. The transaction has been entered into between two unrelated parties by way of a written agreement and one of them is statutory corporation; the payment was made by banking channels; sales tax and other applicable taxes were paid and the transactions of sale has been accepted as valid by the concerned .....

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, there arises no question of evasion of tax and in any case if it is a genuine business transactions, the same should not be categorized as a colorable device merely because its results in reduction of tax liability. Further, it has been established that ownership of the impugned asset was with the assessee and the same was used for the purpose of business of leasing carried on by the assessee; under these circumstances the assessee was entitled for the benefit of depreciation. Therefore, AO is .....

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cts, we find that orders of the Tribunal of earlier orders should be followed for deciding this issue, thus we direct the AO to grant benefit of deduction u/s 80HH & 80IA on the amount of interest received from customers/dealers.- Decided in favour of assessee - ITA No. 4599/Mum/2002, ITA No. 4836/Mum/2002 - Dated:- 20-4-2016 - Shri C.N. Prasad, Judicial Member And Shri Ashwani Taneja, Accountant Member For the Petitioner : Shri Yogesh A. Thar & Shri Chaitanya D. Joshi (AR) For the Respon .....

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sessee and by Shri Alok Johri, Departmental Representative (DR) on behalf of the Revenue. First, we shall take up Revenue s appeal in ITA No.4836/Mum/2002 for A.Y. 1996-97: 2. The revenue has raised following grounds: "1. On the facts and circumstances of the case, the CIT(A) erred in directing the A.O. to allow depreciation of ₹ 46.75 crores to the assessee in respect of the boiler leased to Andhra Pradesh State Electricity Board as claimed by the assessee in the return of income. 2. .....

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of Ld. CIT(A) in directing the AO to allow depreciation to the assessee in respect of boiler which was purchased from and leased back to Andhra Pradesh State Electricity Board (APSEB). 3.1. The brief facts as borne out from the orders of the lower authorities are that the assessee company was engaged in the business of manufacturing and sale of textiles. It had been exploring avenues for diversification of its activities and in that process it undertook business of leasing of items of plant & .....

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ar. The assessee company acquired COAL FIRED BOILER from APSEB vide agreement/invoice dated 04.09.1995 for a consideration of ₹ 46.75 crores which included a sum of ₹ 4.25 crores of sales tax payable under Andhra Pradesh Sales Tax Law. The said asset was situated at the site of APSEB. The Boiler was originally purchased by APSEB from Bharat Heavy Electrical Ltd. in the year 1990. The consideration of the said Boiler was arrived at after taking into account various factors such as ins .....

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he course of assessment proceedings, the AO questioned this claim of depreciation claimed on the asset leased back by the assessee to APSEB and disallowed the same by making, inter-alia, following adverse observations: i. The Boiler is an integral part of whole electricity plant belonging to APSEB, and it cannot be removed from the site. ii. Giving equipment on lease does not have any connection with the assessee s business. iii. For claiming of depreciation u/s 32, an assessee must be owner of .....

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uation made by the valuer was on the higher side and it was used for receiving substantial finance. As per AO, the reading of the lease agreement suggest that the assessee did not bear any risk, the lesser did not give any warranty for fitness or suitability etc. of the asset and the lease tenure was fixed for a fixed period and the lessee was bound to pay monthly lease rentals in advance and that lessee was not given any right in the lease agreement to terminate the lease at its option. The AO .....

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ons, assessee was entitled for the benefit of deprecation. The Ld. CIT(A) took into account adverse observations of the AO, detailed submissions made by the assessee and case laws relied upon by both the sides and thereafter held that the transaction done by the assessee was a genuine transaction and fell within the four corners of law and the assessee was entitled for claim of depreciation. 3.4. Being aggrieved, the revenue has filed appeal against the order of the Ld. CIT(A). 3.5. During the c .....

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arala Automation Ltd. vs. JCIT 266 ITR178 (Karnataka High Court) and Hathway Investments Pvt. Ltd. vs. ACIT (ITA No.4069/Mum/2001 dated 07.08.2013. He concluded his argument by submitting that in view of these judgments assessee was not entitled to make the claim for depreciation. 3.6. Per contra Ld. Counsel of the assessee relied upon the detailed findings of the Ld. CIT(A) and pointed out that Ld. CIT(A) has met all adverse observations of the assessee officer and he has correctly analysed the .....

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ase of Avasarala Technologies Limited 373 ITR 34 affirming the decision of Karnataka High Court in Avasarala Automation Ltd. 266 ITR 178. He also filed another written note distinguishing on facts the decision of coordinate bench relied upon by the Ld. DR in the case of Hathway Investments Pvt. Ltd. (supra). It was further stated that judgment of Hon ble Supreme Court in the case of Asea Brown Boveri (supra) was considered and distinguished by the Hon ble Delhi High Court in the case of CIT vs. .....

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IOL- 397-ITAT-Mum) 7. CIT vs. Cosmo Films Ltd. (2011) (12taxmann.com 217) Delhi High Court) 8. Industrial Development Corp of Orissa Ltd. vs. CIT (137 Taxman 556) (Ori) 9. CIT vs. Punjab State Electricity Board 183 Taxman 419 (Punj & Har) 3.7. He also took us through Explanation 4A of Section 43(1) to argue that legislature has also recognized and brought the concept of sale and lease back of assets and consequential benefits to be provided for such transactions within the provisions of law. .....

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e AO. It is noted by us that explanation 4A has been inserted to section 43(1) by Finance Act 1996 w.e.f. 01.10.1996, which is reproduced as under: Where before the date of acquisition by the assessee (hereinafter referred to as the first mentioned person), the assets were at any time used by any other person (hereinafter referred to as the second mentioned person) for the purposes of his business or profession and depreciation allowance has been claimed in respect of such assets in the case of .....

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transactions where assets are purchased by an assessee from a person and the same are leased back to the same person under the terms of agreement. Thus, the legislature has itself recognized that such kind of transactions may fall within the four corners of law and assessee can claim benefit of depreciation under the realm of law so long as transactions meets the other requirement of the law and these are not found to be bogus or sham transactions. Under this legal background, let us further ana .....

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eceipt from APSEB confirming receipt of sale proceeds. With the assistance of the parties, we have gone through all these relevant documents and more specifically few clauses of the lease agreement signed by both the parties i.e. assessee company and APSEB, to examine whether the ownership of the Boiler was duly transferred to the assessee company as per law and facts. Our attention has been drawn specifically on the following clauses of the lease agreement: 2. The lessor hereby undertakes to, a .....

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dition and repaid at its own cost in all respects, and to replace and make good immediate to the full satisfaction of the Lessor all parts damaged or worn out in the ordinary course of operating the said equipment. (c) To confirm the lessor as at the 31st march of every year that the assets leased out under theses presents are intact, safe, and in good health and working order. 6. It is hereby mutually agreed by the between the lessor and the lessee as under, namely: - (d) The lessor may assign .....

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nt. Thus, from the above documents it can be said that the assessee company became owner of the asset. Once the assessee company is owner of the asset, it will be entitled to get depreciation if asset is used for the purpose of it business. In this regard, it was also brought to our notice during the year that assessee was engaged in carrying on the business of leasing and therefore, the assessee used the asset for the purpose of its leasing business. 3.12. It is noted by us that facts have been .....

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discussed above and perused the views of the A.O. in this respect from the Assessment Order. 8.1 The A.O. disallowed the claim of depreciation amounting to ₹ 46.75 crores on the assets leased out by the Appellant under the Lease agreement. The figures and facts are not in dispute. Hence, what is to be decided is whether the A.O. was justified in denying the depreciation or not. The first and foremost point repeatedly expressed by the A.O. is that there was no valid sale of the asset by AP .....

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legally prescribed procedures. The lease agreement also empowers the Appellant to remove the asset on the completion of lease period or otherwise. The Appellant has also submitted a letter from the Chartered Engineers to the effect that the asset can be removed from the site subject to certain conditions. The Chartered Engineers has also certified that the asset after its removal will fetch some value but will not have the same value as they would have as a composite unit. Hence the asset is a m .....

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to take back the asset, dispose, remove the asset, etc. The A.O. is wrong in denying the ownership just because some rights are not transferred. One does not cease to be the owner of other rights attached to the property. What is relevant to be seen is the legal ownership, which is essential element for claiming depreciation. 8.4 In this case, the ownership still continues with the lessor. The fact that the lessee enjoys some of the rights does not make any difference as regards the ownership. .....

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rship of the asset is transferred, then the owner of the asset is bound to take back its asset on completion of the lease or on the happening of some events and in such case APSEB will not have any legal right to prevent the owner from parting with the asset. 8.6 As far as whether the asset has been used for the purpose of business, I find that the Appellant has passed a resolution at the its AGM for commencing the business of leasing of assets and also made the amendment to the Memorandum of As .....

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r. Each option will have its own advantage and disadvantage and the assessee is the best person to decide which is the best option suitable for their business. In the instant case, the Appellant has purchased the asset and given it on lease to APSEB. The Appellant secured a security deposit of ₹ 11.69 crores from the lessee. The Appellant is getting lease rentals every month through their banks. It may be true that the Appellant has incurred ₹ 46.75 crores as cost of the asset and th .....

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lessee and hence in effect the Appellant has paid only ₹ 34.59 crores to the lessee. The Appellant has been enjoying the security deposit in their business. Further if at all, the whole transaction is to be construed as finance transaction, then why should APSEB sell its asset for ₹ 46.75 crores, keep the asset with it and also give a security deposit of ₹ 11.69 crores to the Appellant? Lease financing is a recognised mode of financing and only because a lease transaction is e .....

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(1) w.e.f. 1.10.1996 wherein it provides that in case of such sale and lease back transaction, the written down value of the asset in the hands of the seller has to be taken into account for the purpose of allowing depreciation in the hands of the lessor. Hence, it is to be noted that the Income tax Act recognised all those genuine sale and lease back transactions and allowed the depreciation on the cost of the asset incurred by the assessee prior to 1.10.1996. This is further strengthened by th .....

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e lessor. This measure, while not affecting bonafide transactions will prevent loss making concerns from indulging in unhealthy trade off of depreciation." (Para 95 of the speech). Hence, the only difference brought by the amendment is that the cost of acquisition in the hands of the lessor was restricted w.e.f. 1.10.1996 to the written down value in the hands of the previous owner. 8.8 The other point to be seen is whether the boiler under reference is a part of the power generating system .....

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than 75% in case of coal fired and 801/o in case of oil/ gas fired boilers). In fact, if one goes through the depreciation schedule, there are many items which may not be a plant by itself; but can be operational only if the same is attached to some other plant. But the legislature has prescribed different depreciation rates for many such items. This clearly establishes that that depreciation is to be allowed on the items as prescribed in the Schedule irrespective of the fact whether such item i .....

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at a higher price. Hence, purchase price of ₹ 46.75 crores is much less than the value as per valuation report of ₹ 75.60 crores and therefore, there cannot be any allegation, leave alone the conclusion to the effect that the valuation report is obtained to raise substantial finance, in fact, such a situation can arise only when the purchase cost is higher than the valuation price. The Appellant has valued the asset through qualified engineers approved by the Government and hence, t .....

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t the transaction was intended to reduce the tax liability by claiming depreciation on the enhanced cost of the asset. It is to be noted that though in the first year, there was a reduction in tax liability, but in subsequent years, the Appellant has offered full lease rentals for tax. Hence, it cannot be categorically said the Appellant has reduced the tax liability only by looking into the very first year ignoring the tax effect in subsequent years. 8.10 The A0 has relied on the International .....

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transaction cannot determine the character or nature of a transaction and therefore, cannot govern the taxability or otherwise of a transaction. Respectfully following the decision, I am of the view that the reference to the Accounting literature made by the A.O not relevant for holding this lease transaction to be in the nature of financial lease. 3.13. During the course of hearing before us, both the parties have made their respective arguments. The Ld. DR has not been able to controvert the .....

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After the sale of asset, APSEB did not claim depreciation on the said asset in its return. 3.14. In addition to the above factual findings, the conclusion drawn by the Ld. CIT(A) after analyzing entire facts and various judgments is also very relevant to be discussed here. The operative part of his conclusion is reproduced here under: 16. Now to sum up, the sale and lease back transaction is the genuine transaction. The transaction is entered into between two unrelated parties by way of written .....

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justified in denying depreciation to the Appellant. Accordingly, the A.O. is directed to allow the depreciation of ₹ 46.75 crores in the hands of the Appellant in respect of the boiler leased to APSEB, as claimed by the Appellant in its Return of Income. 3.15. Thus, from the above discussion it comes out that not only the transaction was genuine, but also the other note worthy point is that as a net-effect it does not create any material difference in the long run on the total tax liabili .....

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discuss the judgments which have been relied upon by the Ld. Counsel in support of the decision of Ld. CIT(A). In the case of West Coast Paper Mills Ltd. v. JCIT, (supra), Mumbai Bench of ITAT made detailed analysis wherein similar transaction was done by the said company with another State ElFectricity Corporation namely Haryana State Electricity Board (HSEB). The bench held that similar kind of transaction was not sham transaction and allowed the claim of depreciation. The revenue took this ma .....

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at the transactions of buy back of lease equipments and granting lease of that equipment to various boards, were sham transactions entered into only for the purpose of claiming benefit of 100% depreciation. The Tribunal has considered that aspect of the matter in the light of the material on record and has recorded the finding that it is not a sham and bogus transaction. One of the grounds considered for recording that finding is that when the other party is a statutory body the question of evas .....

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e assessee. 3.18. Further, in the case of Bombay Burmah Trading Co. Pvt. Ltd. vs. ACIT, Mumbai Bench held as under: To sum up, if it is a genuine business transaction, the same should not be characterized as a colorable device merely because it results in reduction of tax liability. Whether a particular transaction is a genuine business transaction or not, has to be gathered from the facts and circumstances of each case. In case of sale and lease back transactions, the same would generally be tr .....

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n to analyse similar transactions done with the same corporation namely APSEB and after considering various judgments including the judgment of Hon ble Special Bench in the case of IndusInd Bank Ltd. v. ACIT, 135 ITD 165 (SB), which was relied upon by the Ld. DR before us, held that assessee was entitled for depreciation. Relevant observations of the Hon ble Bench are reproduced below: 2.1 Briefly stated, during the year under consideration, the assessee company purchased energy meters costing i .....

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ity of the assets. On appeal, the Ld. CIT(A) deleted the impugned disallowance on the basis of the earlier order of the Ld.CIT(A) providing relief to the assessee on similar issue for the assessment year 1996-97. Aggrieved by the impugned decision, the revenue is in appeal before us. 2.2 Having heard both the sides and perused the material on record, it is pertinent to mention that it is the contention of the revenue that according to the decision of the Special Bench in the case of IndusInd Ban .....

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before the Special Bench of the Tribunal and therefore according to the said decision of the Delhi High Court, the assessee is entitled for the claim of depreciation. The Ld. Senior Counsel has further relied on the decision of the Hon'ble Apex Court in the case of M/s. ICDS Ltd. Vs.CIT1 Mysore (2013), 350 ITR 527(SC), the decisions of the Co-ordinate Benches of the Tribunal in the cases of Development Credit Bank Vs. DCIT (ITA No. 3006/Mum/2011), M/s. Larsen and Turbo Ltd. Vs. JCIT (ITA No. .....

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(supra), wherein the Apex Court has allowed the depreciation in the case of sale and lease back transaction. This decision of the Apex Court has been followed by the Tribunal in the case of Development Credit Bank Ltd (supra). Considering the fact of the case in the light of the judicial decisions, we find that the issue is squarely covered in favour of the assessee and accordingly the assessee is entitled to claim the depreciation on sale and leased back assets. Therefore, the order of the Ld. .....

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at the rate of 100%, the assessee-company, at the same time, is disclosing lease rentals as part of its taxable income for the concerned lease period. The depreciation at the rate of 100% on energy saving device is given by the wisdom of the Legislature. There cannot be a grievance against that. Any of the parties involved in the process would be entitled to claim the said 100% depreciation in its hands. Because that is a grant of the Legislature. In the present case, the depreciation has been .....

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are not prohibited by law. They are within the four corners of law. Therefore, in obedience of the decision of the Orissa High Court as stated above, we have to hold that the assessee is entitled to claim depreciation at the rate of 100% on the assets leased out by it to APSEB. 30. It is the argument of the Revenue that the transactions involved in the present case did not answer the tests laid down by the Supreme Court in the case of Asea Borwn Boveri Ltd. Vs. Industrial Finance Corporation of .....

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as not pointed out any material defect in the said valuation report or in the value determined by the parties, the terms of the lease agreement do not bring out any case that the transactions were of a nature other than a lease transaction. The conducts of the parties were in tune with the contentions advanced by the assesseecompany. The existence of the energy saving device has been established; its user has been established and in such circumstances there cannot be a case that the transaction .....

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d various judgments which have been relied upon by the Ld. AO or by the Ld. DR before us, namely Avasarala Automation Ltd. vs JCIT ( Karnataka High Court) (supra), Asea Brown Boveri (supra), McDowell & Company Ltd ( 154 taxmann 148) (SC) and Union of India vs. Azadi Bachao Andolan 263 ITR 706 (SC). The gist of the judgment of Hon ble Delhi High Court is reproduced hereunder: Insofar as the assessee was concerned, on the basis of the factual position on record, it had '- purchased the equ .....

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ld have to be held that the transaction was not genuine; and that the same was a subterfuge. Merely because an assessee gets a commercial advantage because of the factoring in of a tax benefit, it cannot be said that the transaction is not genuine. There was no finding in the instant case or evidence to indicate that the transaction was not genuine. Once it was established that the ownership of the said equipment was that of the assessee, then it was clear that the assessee would be entitled to .....

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to assessee, same cannot be brushed aside on the basis of a presumption that motive of making the transaction was only to reduce tax liability. 3.23. Similarly, Hon ble Punjab and Haryana High Court in the case of CIT vs. Punjab State Electricity Board, (supra) after analyzing various judgments relied upon by the Revenue and its argument that the machinery continue to remain with the seller, it was held that transactions could not be treated as sham or artificial transaction. It was held that: O .....

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, the matter has been explained in subsequent judgments including in Union of India V. Azadi Bachao Andolan 263 ITR 706, reiterating the view that the assessee was entitled to arrange his affairs to reduce tax liability, without violating the law. It was observed in Azadi Bachao Andolan s case (supra) that the principle laid down in IRC v. Duke of Westminster [1936] A.C. was still valid. 3.24. Thus, from the analysis of the cases as discussed above, the clear position of law that emerges before .....

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n response to which, Ld. Counsel submitted a detailed note to demonstrate the distinction in facts between the case of the assessee and the aforesaid judgment of Hon ble Karnataka High Court which was later on approved by the Hon ble Supreme Court also. For the sake of ready reference we shall like to reproduce hereunder, the distinguishing features brought before us between Avasarala and case before us: Particulars Avasarala Technologies Bombay Dyeing ( assessee) 1 Transaction with Andhra Prade .....

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t under the agreement/deed Asset not identified (Page 5 Para 8) Machinery is identified explicitly in the schedule forming part of lease agreement (Page 17 of FPB) 5 Application of explanation 4A to sec 43(1) WDV as per 43(1) not identified (Page 5 Para 8) N/A-since Explanation is applicable w.e.f. 01/10/1996 and is not retrospective in operation. 6 Determination of market value (MV) MV not ascertained (Page 5 Para 8) Ascertained as per Independent Valuation Report. (Page 2 Para 4.8 of CIT(A) s .....

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installation certificate and other basic details before lower authorities Invoices / other basic details were never produced before lower authorities (Page 6 Para 10) Invoices, installation certificate and all basic details were produced before authorities and verified by them. (Page 5 Para 7.1 of CIT(A) s order) 10 Tax treatment accorded by the AO to lease rental income Lease rental offered to tax by the assessee were excluded from assessable income by the AO. (Page 3 Para 2) Lease rent has bee .....

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7.1 of CIT(A) s order) course of assessment proceedings. (Page 4 Para 5) 12 Details in Valuation Report Valuation Report not clear whether equipment can be detached and removed from the place whether it is installed (Page 6 Para 9) Valuation Report clear that the equipment can be detached and removed. (Page 2 Para 4.8 of CIT(A) s order) 13 Decisions of Lower Authorities All lower authorities after considering materials placed before them have recorded a finding that it is a sham transaction (Pag .....

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ere produced before authorities and verified by them. In the case of Avasarala , lease rentals offered to tax by the Avasarala were excluded from assessable income by the AO of Avasarala , whereas in the case of assessee before us, lease rentals have been taxed as business income for the year under consideration. In the case of Avasarala , it did not furnish details of installation, copies of invoices, depreciation claimed by previous owner etc., which were called for by the AO nor did it extend .....

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removed. In the case of Avasarala , all lower authorities after considering materials placed before them had recorded a finding that it was a sham transaction, whereas in the case of assessee before us, Ld CIT(A) after considering the factual details, concluded that it was a genuine transaction. 3.26. Similarly Ld. DR vehemently relied upon another judgment of the Mumbai Bench in the case of Hathway Investment P. Ltd. In this regard also detailed note has been filed before us showing distinguis .....

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location of the assets not specified in sale invoice/lease agreement (Page 15 Para 14) Identification and location of assets specified in schedule forming part of lease agreement (Page 17 of FPB) 4 Transfer of property Property did not pass to the buyer as goods were not identified (Page 15 Para 14) Property passed to the buyer since the asset/goods were identified (Page 17 of FPB) 5 Determination of sale value Sale value has been fixed on lump sum basis without ascertaining value of each energy .....

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ctric meters leased back not specified (Page 17 Para 19) Machinery leased back specified (Page 17 of FPB) Rental payments will start from the date of last payment made by Lessor to manufacturer even if it is before the date of delivery of equipment (Page 17 Para 20.II) Rental payments start from the date of lease agreement (Page 18 of FPB) If manufacturer fails to deliver the equipment to lessor by the stipulated date, lessee shall make payment to lessor of the advance along with costs, charges, .....

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clause If the lessee refuses /is unable to accept the the delivery and installation of the equipment, lessor shall be entitled to cost of the equipment plus other expenses incurred (Page 18 Para 20.VII) No such clause Lessee as the agent of lessor will be responsible for obtaining timely delivery of the equipment (Page 18 Para 20.VII) No such clause Function of lessor in the lease is to purchase the equipment selected by the lessee from the Manufacturer designated by lessee (Page 18 Para 20.VII) .....

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oss to the lessor (Page 20 Para 20.XI) No such clause Option on lessee to renew the lease indefinitely (Page 19 Para 20.X) Option to renew the lease on lessee, only on mutually agreed terms though not indefinitely (Page 9 Para 9 of FPB) On termination of the lease agreement, the lessor i.e. Bombay Dying shall be entitled to remove and repossess the equipment (page 12 para 11 (a) of FPB) 3.27. We have made careful analysis of the cases relied upon by the Ld. DR and the distinguishing features as .....

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the transaction done by the assessee and by these two companies. Thus, ratio of these decisions cannot be applied verbatim on the facts of the case before us. 3.28. We have already discussed in earlier part of our order various judgments relied upon by the assessee wherein other judgments relied upon by the Ld. DR, e.g. Asea Brown Boveri vs. IFCI (SC) (supra) and IndusInd Bank Ltd. vs. ACIT 135 ITD 165 (SB), were distinguished and it was held that in case of the transactions similar to that of a .....

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ansactions of sale has been accepted as valid by the concerned sales tax authorities. Though in the initial year assessee has claimed depreciation which reduced tax liability but at the same time amount of all these rentals have been included in the taxable income by the assessee in subsequent year during the lease period and thus, over all, there was no loss of revenue to the income tax department. Further the sale and lease back transactions have been recognized by the legislature by insertion .....

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was entitled for the benefit of depreciation. Therefore, AO is directed to grant the benefit of depreciation. This ground of the revenue s appeal is dismissed. 4. Ground No.2: In this ground, the revenue is aggrieved with the action of Ld. CIT(A) in directing the AO to re-compute the depreciation admissible as per law taking into account the increase in the cost of assets on account of fluctuation in foreign exchange rates as on the last date of the accounting year i.e. 31.03.1996. 4.1. The unan .....

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upon the judgment for Hon ble Supreme Court in the case of CIT v. M/s. Woodward Governor India P. Ltd. [2009] 312 ITR 254 (SC), this issue has been decided by the Tribunal in favour of the assessee and Revenue s appeal was dismissed. This order has been followed by the Tribunal in assessment year 1993-94 and also in 1994- 95. Thus, respectfully following the orders of the Tribunal of earlier years in assessee s own case, this issue is decided in favour of the assessee and against the revenue. T .....

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uction u/s 80HH and 80IA of the Act pertaining to DMT Unit I & Unit II by ₹ 144.84 Lacs and ₹ 312.62 lacs respectively. 011 the ground that: interest from customer for delayed payments of ₹ 681.09 lacs & 542.71 lacs are not eligible for deduction u/s 80 HH & 80I respectively. 2) Technical Know - How Fees of ₹ 68,38,000/- 2.1. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the inclusion of income of ₹ 68,38,000/- .....

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ees during their stay at Matheran Holiday Home by treating the same as Entertainment expenditure. 4) Notional Interest on overdraft facility to hank for payment of Advance Tax - ₹ 76,82,959/-. 4.1 On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the disallowance made by the Assessing Officer towards the notional interest of ₹ 76,82,959/- on overdraft facility from the bank towards the payment of advance tax. 5. Deduction u/s 80 HHC of the Inco .....

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sitory Receipt on the basis that it was a capital expenditure since it was in connection with issue of shares and led to an increase in the share capital of the Appellants. 7.1. During the course of hearing, assessee also filed ground no.7 which is claimed to be alternate ground to ground no.6 of the main grounds, reproduced as under: Without Prejudice to Ground No. 6: Ground No. 7: Claim under section 35D of the Act: The CIT(A) erred in confirming the disallowance of ₹ 28.74 lacs towards .....

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earing, it was argued by Ld. Counsel that all the grounds are covered by the earlier years orders of the Tribunal in assessee s own case, either in favour of the assessee or against the assessee. The Ld. DR also agreed with the submissions of the assessee that in most of the issues that the grounds are covered in one way or the other by the orders of the Tribunal in assessee s own case in earlier years. 9. After hearing both the parties, and having gone through orders of the lower authorities as .....

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e deciding this issue has followed his own orders of the earlier years. In view of these facts, we find that orders of the Tribunal of earlier orders should be followed for deciding this issue. It is noted that the Tribunal in its order for A.Y. 1992- 93, dated 31.08.2012 in ITA No. 1076/M/1997 held as under: We have considered the rival submissions as well as relevant material on record. As regards the deduction under Section 80HH & 80I with respect to interest received from customers for d .....

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ourt in the cases of Pandian Chemicals Limited Vs. CIT, reported in 262 ITR 278(SC), CIT Vs. Sterling Foods, reported in 237 ITR 278 (SC) and Liberty India Vs. CIT, reported in 317 ITR 218 (SC), the deduction under Section 80HH & 80I is not allowable on these incomes. Hence, ground No.7.1 is partly allowed. 10.1. Thus, respectfully following the orders of the Tribunal, we direct the AO to grant benefit of deduction u/s 80HH & 80IA on the amount of interest received from customers/dealers .....

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ned AR of the assessee as well as learned DR and considered the relevant material on record. In the assessment year 1998-99, this Tribunal has considered this issue in revenue s appeal i.e. ITA No.3620/M/2003, vide order dated 26th February, 2009 in para 20 & 21 as under:- 20. The Learned AR for the assessee pointed out that the assessee was to receive technical fees in connection with the Agreement with the foreign party which were thought to be received for Assessment Years 1991-92 to 1997 .....

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me for the Assessment Year under consideration. The learned AR also pleaded that whatever is assessed in the earlier year is to be excluded from this year and the balance may be brought to tax in the present y ear. The learned DR relied on the order of the Assessing Officer. 21. We have heard the rival submissions and perused the records. The assessee had entered into technical know-how agreement with M/s P.T. Five Star Industries Ltd. During the year under consideration a sum of ₹ 15.33 C .....

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77; 3,59,32,602/- has already been brought to tax. The assessee had included the total amount in the P & L Account of the previous year ending 31.03.1998 being income on receipt basis. However, some portion of the said income has already been brought to tax on accrual basis in the preceding years and hence only the balance is to be brought to tax during the relevant Assessment Year. The said income which has already been brought to tax is to be excluded from the current year. We confirm the .....

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purpose. 6.2 Accordingly, we direct the Assessing Officer to verify the fact of amount of technical know-how fee of ₹ 15.33 crores as has been taxed for the assessment year 1998-99 and accordingly reconsider the issue of addition of ₹ 55.77 lakhs on account of technical know-how fee for this year. 11.1. In view of the orders of the Tribunal, we send this issue back to the file of the AO and direct him to follow the directions of Tribunal given in the orders of the earlier years and .....

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n decided against the assessee by the Tribunal in earlier years. It is noted that the Tribunal in A.Y. 1992-93 held as under: 3. The next ground raised by the assessee as ground No.2, which is as under:- 2. Entertainment expenses of ₹ 1,21,329/- The AO erred in treating 75% of the gross expenses on tea, snacks, etc. of ₹ 43,948/- (disallowed 75% ₹ 32,961/-) to visitors as entertainment expenses. In doing so, the AO failed to appreciate that providing a cup of tea, coffee, etc. .....

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ran Holiday Home. The AO failed to appreciate that such expenses are specifically not covered for disallowance by virtue of a proviso to subsection (4) read with sub section (5) of Section 37 of the Income tax Act. 3.1 We have heard the learned AR of the assessee as well as learned DR and considered the relevant material on record. At the outset, we note that this issue has been considered and decided by this Tribunal in assessee s own case for the assessment year 1990- 91, vide order dated 17-4 .....

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owance to ₹ 56,250/-. Consequently, the findings of the ld. CIT(A) in respect of such disallowance is upheld. This ground of appeal is dismissed. 3.2 Learned AR has relied upon the case of Hindustan Lever Limited Vs. ACIT, reported in 58 ITD 555. On the other hand, learned DR has submitted that the CIT(A) has given a finding of fact that the assessee has not complied with the conditions as provided under clause (b) of Second Proviso to Section 37(4) of the Income Tax Act. We are of the vie .....

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therefore respectfully following the order of the Tribunal of earlier years; this issue is decided against the assessee. Accordingly, the disallowance made by the AO is upheld. Thus, this ground is rejected. 13. Ground no.4: In this ground, the assessee has raised grievance against the disallowance of notional interest on overdraft facility availed from bank for payment of advance tax. It is brought to our notice that similar issue has been sent back to the file of the AO by the Tribunal in ear .....

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sessing Officer in ground No.3 of the assessee s appeal, therefore, this issue is also set aside to the record of the Assessing Officer for limited purposes to verify as to whether the deposit in the overdraft account made during the year was sufficient enough in making the investment as well as the payment of tax. 13.1. In view of the above, the AO is directed the follow the directions given by the Tribunal in earlier years and reexamine the facts and decide this issue afresh after giving adequ .....

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,287/-. 14.1. It has been fairly stated that this issue has been decided against the assessee by the Tribunal in assessee s own case for A.Ys. 1994-95 & 1995-96. It is noted that the Tribunal decided this issue against the assessee in assessment year 1994-95 vide order dated 08.01.2014 in ITA No.2139/Mum/2000 by observing as under: Ground no. 7 (i) relates to the disallowance of deduction of ₹ 72,45,570/- claimed u/s 80HHC by the assessee company. The relevant facts are that the assess .....

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e, when the profit and loss from the manufacturing operation is worked out, it resulted in a loss, as 90% of the export incentives are removed from the profits and gains and are added only at the last stage of formula. Accordingly, the AO disallowed the claim of deduction as there is no profit, there is no question of adding proportionate export incentive to the profit under the proviso to sub section (3) of 80 HHC does not arise. On appeal, the Ld.CIT(A) by relying on various decisions confirme .....

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on 80HHC. It would not be denied that the word profit in Section 80HHC(1) and Sections 80HHC(3)(a) and 80HHC(3)(b) means a positive profit. In other words if there is a loss, no deduction would be available under sections 80 HHC(1) or 3(a) or 3(b). In arriving at the figure of positive profit, both the profits and losses will have to be considered. If the net figure is a positive profit, the assessee will be entitled to a deduction. If it is a loss, the assessee will not be entitled to any deduc .....

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ined in Chapter VIA, including Section 80HHC. If the income has to be computed in accordance with the provisions of the Act, not only profits but also losses have to be taken into account. The term profit means a positive profit. It is not necessary that the word profit must have the same meaning. The meaning of the word profit will depend on the context in which it is used. For purposes of computation u/s 80HHC(3), both profits as well as losses have to be taken into account. The word profit in .....

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confirming the said disallowance. Ground no. 7(i) is dismissed. Thus, respectfully following the order of the Tribunal, this issue is decided against the assessee and this ground is dismissed. 15. Ground Nos. 6 & 7: In these grounds the assessee has made a claim for allowing the expenses incurred in connection with Global Depository Receipt (GDR) for the reason that if these are treated as capital expenditure on the ground that these were in connection with issue of shares which led to an i .....

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35D has been sent back to the file of the AO for re-examination on facts. The relevant portion of the order of the Tribunal is reproduced below: 12.1 Having heard both the sides and perused the material on record, it is pertinent to mention that the Hon ble Apex Court in the case of Brooke Bond India Ltd Vs CIT reported in 225 ITR 798 has held that though the increase in the capital results in expansion of the capital base of the company and incidentally that would help in the business of the co .....

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equent upon the issue of GDRs and the expenditure was incurred by the assessee company with increasing or addition to the existing share capital. Therefore, we do not find any infirmity in the decision of the authorities below in holding that the expenditure must be treated on capital account and the same is not allowable u/s 37(1) of the Act. 12.1.1 On the issue of alternate claim of the assessee that the deduction had to be allowed u/s 35D of the Act, the Ld.AR of the assessee has stated that .....

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e DMT Division during the year under consideration and the plant has been shut down for a period to complete the major revamping involved in the expansion. Also, the perusal of the balance sheet as on March 1994 indicates that there is a raise in the fixed assets from 390.97 crores as on 31.03.1993 to 610.71 crores as on March 1994. Schedule 5 on fixed asset indicates that there is an addition of 218.47 crores in gross block during the year under consideration. These facts results in the presump .....

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