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TMI Blog2018 (5) TMI 951X X X X Extracts X X X X X X X X Extracts X X X X ..... st Ground of appeal is about directing the AO to modify the addition of interest of Rs. 1. 27 crores on the interest free advances given to the AE. s. During the TP proceedings. the TPO noted that during the year under consideration the assessee had advanced money to its four AE. s. namely. PT Taurian Iron and Steel Indonesia ( Rs. 694. 57 lakhs); Taurian Global Investment Ltd. . Dubai(Rs. 870. 43 lakhs); Pt. Energy Resources Sea Indonesia (Rs. 4. 22 lakhs) and Transworld Acquisition Pte Ltd. Singapore. (Rs. 1. 33 lakhs). that assessee had not charged any interest on the advances made to the AE. s. Vide its letter date 13/6/2012. the assessee explained to the TPO that it had remitted the interest free advances to support business of the AE. s at the initial stage as per the requirement and in view of commercial expediency. that no notional interest could be charged as the advances were made in the ordinary course of business. On 21/12/2001 the assessee stated that no notional interest could be charged against the advances. However. the TPO proposed to charge arms' length interest @ 13% on the advances made to the AE. s as under :- i. PT Taurian Iron & Steel Indonesia - Rs. 1. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in part. 6. Next two grounds are about interest on share application money and depreciation of leased assets respectively. Representatives of both the sides agreed that Gs. OA-2 and 3 are covered by the order of the Tribunal. delivered for the earlier AY. (ITA/5920/Mum/2012;dtd. 16/09/ 2016). Dealing with the issue of interest on share application money. the Tribunal has decided the matte as under: "31. We have considered the rival submissions of either side and perused the relevant materials on record. including the orders of the authorities below and are of the considered opinion that though it is claimed that amounts aggregating to US $ 8. 60. 000 had been remitted by the assessee company by way of 'Share application' money to its wholly owned subsidiary company (for short 'WOS') viz. Taurian CISA at ITA No. 5920/12 36 Abdidjan Ivory Coast of West Africa under the automatic route of 'Foreign Exchange Management Act. 1999' (for short TEMA') for overseas direct investment in terms of Notification No. FEMA 120/RB-2004. dt. 07/07/2004 r. w Clause (a) of Sub-section (3) of Sec. 6 of the TEMA'. after due compliance of the statutory provisions contemplate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied by the judgment of the Hon'ble High Court of jurisdiction so passed in the case of Director of Income Tax (Intl. Taxation) Vs. Besix Kier Dabhol SA (26 taxmann. com 169)(Bom). However. as regards the balance amount of remittance of US $ 2. 00. 000 (supra) made by the assessee company to its 'WOS'. against which no shares were allotted and the amount was refunded to the assessee company. we are of the considered view that the factum of advancing of the said amount by the assessee company to its 'WOS'. and the refunding of the same by the 'WOS' after enjoying the said amounts. as such. would safely fall within the realm of a simpliciter advance. which therein would render the color and character to such transaction. as that of being a 'loan transaction'. In this regard it would be relevant and pertinent to point out that the host of decisions/orders of different benches of the Tribunals so relied upon by the Ld. A. R of the assessee company to support his contention that recharacterizing of the share application money remitted by the assessee company to its 'WOS'. even to the extent where no shares had been allotted against the same and amounts had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'WOS' and use of the said money by the latter. the assessee company in its status as that of being the sole owner of the subsidiary company. remains the beneficiary of all the gains of the subsidiary company. therefore non allotment of the shares to the assessee company during the period of payment of the share application money till the actual date of allotment. would therefore not go to prejudice the position of the assessee company in any way. The reliance placed upon by the Ld. A. R of the assessee company on the judgments of the Hon'ble High Courts. is found to be misconceived. as the same are found to be delivered in context of Sec. 36(1)(iii) of the 'Act' and in reference of the issue under consideration in the present case. 33. That in light of our aforesaid observations. we herein set aside the order of the Ld. CIT(A). to the extent the latter had upheld the order of the A. 0 treating remittances to the extent of US $ 6. 60. 000/- by the assessee company to its 'AE'. i. e M/s Taurian CISA at Abdidjan Ivory Coast of South Africa (the 'WOS' of the assessee company) towards 'Share application' money. as loans and advances. and on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 'Fixed assets' and 'Interest' and 'depreciation' on the said assets. . i. e wagons were debited in the 'P &. loss a/c' as an expense. The assessee company while filing its 'Return of income' for the year under consideration. disallowed the 'depreciation' and the expenses in the 'Computation of income' and claimed the 'lease rental' of Rs. 9. 70. 34. 749/- as an expense by treating the lease as on 'Operating lease'. During the course of the assessment proceedings. the assessee company justifying its entitlement towards the 'lease rentals' therein submitted that the treatment of the lease as a 'Finance lease' in the 'Books of accounts'. as per AS-19 (supra) was not to have any impact on allowability of the said 'lease rental' as an expense in the hands of the assessee company. and in support of its aforesaid contention relied upon the CBDT Circular No. 2; dated. 09/02/2001. which therein provided that as per the new 'Accounting standards' issued by the ICAI. the lessees were required to carry out capitalization of the assets in lease transactions. The assessee company in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee company [Schedule 3. Schedule 19 - Note 5 & Note 1(h). Schedule II of the 'Balance sheet'. i. e Note to the annexures of 'Fixed assets']. which did go to prove beyond any scope of doubt that the assessee company was the sole and absolute owner of the wagons. therein held that the assessee company thus had rightly capitalized the value of assets as 'Fixed assets'. which as per the A. 0 was the correct position of law. The A. 0 further referring to the AS-19 which provides for guidelines both for the 'Finance lease' and 'Operating lease'. and referring to various clauses of the 'Lease agreement' (supra). therein concluded that the assessee company had misconceived the scope of CBDT Circular No. 2; dt. 09/02/2011. because according to the A. 0 though the circular undoubtedly provided that the accounting standards by itself will not have any implication on the allowance of depreciation on assets under the provisions of the Income tax act. however the same could not be stretched to mean that in case of a 'Finance lease' the payments made would be allowed as a revenue expenditure. Thus the A. 0 observing that the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions of either side and perused the relevant materials on record. including the orders of the authorities below and after perusing the material on record find ourselves to be in agreement with the findings of the lower authorities that as the assessee company as per various articles of the 'Lease agreement'. Schedules to the 'Balance sheet' of the assessee company [Schedule 3. Schedule 19 - Note 5 & Note 1(h). Schedule II of the 'Balance sheet'. i. e Note to the annexures of 'Fixed assets']. is proved beyond any scope of doubt to be the sole and absolute owner of the wagons. therefore the lower authorities have rightly held that the lease transaction was in the nature as that of a 'Finance lease' and not an 'Operating lease'. pursuant whereto the 'lease rental' of Rs. 9. 70. 34. 749/- claimed by the assessee company as an expense in the 'Computation of income' had rightly been disallowed by the A. 0 and upheld by the Ld. CIT(A). Thus to the extent the disallowance of the 'lease rental' of Rs. 9. 70. 34. 749/- by the A. 0 had been sustained by the Ld. CIT(A). we uphold the order of the Ld. CIT(A) to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;depreciation' on the wagons owned by the assessee company and used by the latter for the purpose of its business. 40. We are further not impressed by the order of the Ld. CIT(A) who vide his observations recorded at Page 42 -Para 9. 3 of his order. had upheld the disallowance by the A. 0 of the 'Lease rentals' of Rs. 9. 70. 34. 749/- so claimed by the assessee company. by holding that the 'lease transaction' was a 'Finance lease' and not an 'Operating lease'. and while so concluding had strongly relied on the order so passed by his predecessor while disposing of the appeal of the assessee company for the immediately preceding year. i. e A. Y. 2007-08. vide appeal no. CIT(A)- 8/Cir-4/234/0-9-10. however while placing reliance on the order of his predecessor. the Ld. CIT(A) gravely erred in losing sight of the fact that his predecessor though had confirmed the disallowance of 'lease rentals'. but while so doing had categorically allowed the claim of the assessee company towards its entitlement towards 'Interest' and 'depreciation'. Thus the half hearted approach to the issue under consideration by the Ld. CIT(A) is depre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding the lease transaction as that being in the nature as that of a 'Finance lease'. had however declined to allow the claim of the assessee company towards 'depreciation' and 'Interest'. and herein direct the A. 0 to verify the amount of loan and the amounts of interest payments made by the assessee company during the year under consideration towards such loans taken for purchase of railway wagons through finance lease method and allow the claim of interest payment accordingly. Still further the A. O is directed to verify the rate and amount of depreciation on the railway wagons to which the assessee company would stand entitled as per Sec. 32(1) of the 'Act' r. w the Income tax rules and allow depreciation in the hands of the assessee company. Thus the 'Ground of appeal No. 6' is partly allowed in light of our aforesaid observations. Respectfully following the above order. we direct the AO to follow the directions of the Tribunal for the earlier year appearing at paragraph no. 41. Ground no. 3 stands decided accordingly. 8. Last ground of appeal is about allowing depreciation of Rs. 42. 924/- on Motor Car. During the assessment proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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