TMI Blog2015 (1) TMI 1499X X X X Extracts X X X X X X X X Extracts X X X X ..... and complete. The effective return for the purpose of assessment is thus the return which is ultimately filed by the assessee, on the basis of which he wants his income to be assessed. DR could not cite any contrary judgment on this issue. Thus we hold that the findings of the first appellate authority that the return filed u/s 139(5) of the Act is not as per the provisions of law, for the reason that the mistakes were not inadvertent is bad in law. We also observe that, the AO has processed the revised return u/s 143(1)(a). The revised return has not been rejected by him. Under these circumstances, it is not appropriate for the CIT(A) to hold otherwise. Right of the assessee to carry forward of loss - As relying on Periyar District Co-operative Milk Producers Union Ltd. case [ 2004 (2) TMI 58 - MADRAS HIGH COURT] we allow the ground of the assessee by holding that the assessee can file a revised return claiming a higher amount of loss u/s 139(3) of the Act. Amount eligible for deduction u/s 80M - reducing notional interest expenditure from the dividend for calculation of deduction u/s 80M - HELD THAT:- A perusal of the chart demonstrates that the annual internal ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply the principles laid down in SBI Cards Payment Services [ 2015 (1) TMI 202 - DELHI HIGH COURT] and allow the claim of the assessee. Depreciation in respect of commercial vehicles given on lease - Claim denied on the ground that the assessee is not engaged in the business running trucks on hire - HELD THAT:- Admittedly this issue is covered in favour of the assessee by the decision of Tribunal in the assessee s own case for the asstt. [ 2007 (7) TMI 343 - ITAT DELHI-D] The prepositions laid down by the Tribunal in these decisions, are in consonance with, the propositions laid by the Jurisdictional High Court in the case of CIT vs. MGF (India) Ltd [ 2006 (7) TMI 125 - DELHI HIGH COURT] and M/s. ICDS vs. CIT [ 2013 (1) TMI 344 - SUPREME COURT] Disallowance of depreciation on assets which are purchased and leased back - HELD THAT:- Out of the six sale and lease back transaction, except in the case of PSEB and Oswal Sugars Ltd., the AO disallowed the depreciation by questioning the commercial expediency of the transaction. This ground of disallowances is not legally correct. When the genuineness of the transaction is not doubted, disallowance of depreciation is not w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2004 for the asstt. year 1997-98. As both the appeals have common issues, for the sake of convenience, they are heard together and disposed off by way of this common order. The assessee is a company and is engaged in the business of leasing, hire purchase and finance. It filed its return of income, declaring a loss of Rs. 14,99,82,025/- on 30.11.96 for the asstt. year 1996-97. This return was processed u/s 143(I)(a), vide intimation dated 23.1.98, wherein the loss was determined at Rs. 14,85,81,522/-, by making prima facie disallowance of Rs. 13,30,503/-. Subsequently the assessee on 21.8.1997, filed a revised return of income, declaring loss of Rs. 15,89,59,000/- . This revised return was processed u/s 143(1)(a) wherein a similar prima facie disallowance of Rs. 13,30,503/- was made. 2. For the asstt. year 1997-98, the assessee filed its return of income on 21.8.1997, declaring a loss of Rs. 11,16,30,770/-. Thereafter the assessee filed a revised return of income, claiming credit of additional TDS and declaring the same loss as claimed in the original return of income. This return was processed u/s 143(IB). Later the assessee filed yet another revised return of income on 30th Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 143(2) etc. are separately applicable with regard to a revised return. 8.2. First appellate authority at para 2.6 of this order held that revised return of income can be filed, only where the assessee discovers an omission or wrong statement in the return was due to a bonafide mistake or inadvertence by the assessee. After considering the submissions of the assessee he came to the conclusion that the revised return of income is not filed strictly in terms of Section 139(5). Thereafter at para 2.8 held as follows :- 2.8. The contention of Ld. AR that return filed u/s 139(5) is as good as return filed u/s 139(3) of the I.T. Act does not hold good. The law has undergone a change after the finance Act 1987 w.e.f. 1.4.1988, which requires the loss return to be filed within the time allowed under section 139(3) by way of a specific addition of reference to section 139(3) in section 80 for the requirement of the right to carry forward such loss, so that this decision can no longer be of any assistance to the tax payers to disregard their duty enjoined by law to file the return in time, if they want to avail of the benefit of loss to be carried forward. The AO is therefore rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h he wants his income to be assessed. 8.8. The Ld. DR could not cite any contrary judgment on this issue. Under these circumstances we hold that the findings of the first appellate authority that the return filed u/s 139(5) of the Act is not as per the provisions of law, for the reason that the mistakes were not inadvertent is bad in law. We also observe that, the AO has processed the revised return u/s 143(I)(a). The revised return has not been rejected by him. Under these circumstances, it is not appropriate for the CIT(A) to hold otherwise. 8.9. The second issue is on the right of the assessee to carry forward of loss. The Ld. Counsel for the assessee relied upon the decision of Hon ble Madras High Court in the case of CIT vs. Periyar District Co-operative Milk Producers Union Ltd. The Hon ble Madras High Court has held as follows :- A bare perusal of sub-sections (3) and (5) of section 139 of the Income-tax Act, 1961, more particularly the provision contained in section 139(3), makes it clear that a return of loss filed under section 139(3) may be filed within the time allowed under section 139(1). Once such a return is filed, all the provisions of the Income-tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction u/s 80M Rs. 61,66,625/- However, as the gross total income declared by the appellant was a negative figure, the appellant did not claim any deduction u/s 80M. 3.2 The AO observed that investments were made out of borrowings and therefore relying on the earlier year s order he estimated notional interest and expenses relating to such investments amounting to Rs. 34,51,733/- and deducted the same from the dividend received to calculate the deduction u/s 80M on net income basis resulting in a disallowance of Rs. 34,51,733/-. The AO s observations at para 6 of the assessment order are reproduced as under:- Assessee has not allocated any part of the financial/interest expenses towards dividend income and deduction u/s 80M has been claimed on gross dividend income. In fact, as gross total income is at negative figure, no deduction u/s 80M actually claimed by assessee, but according to him, deduction of Rs. 61,66,625/- u/s 80M equal to gross dividend income other than UTI dividend is available to him. In earlier years, Rs. 85,62,623/- out of interest paid was allocated towards investment of amount of Rs. 34,51,733/- shall be allocated towards investments of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Particular Internal Accruals Investments Surplus internal accruals after deducting investment 1 2 3 4 A Balance as on May 31, 1987 25,886,701 450,758 25,435,943 B March 31, 1989 69,257,245 8,264,265 60,992,980 C March 31,1990 138,960,982 14,996,392 123,964,490 D March 31, 1991 219,437,407 35,758,971 183,678,436 E March 31, 1992 292,891,077 52,451,305 240,439,772 F March 31, 1993 396,491,000 83,937,000 312,439,772 G March 31, 1994 732,879,000 140,077,000 592,802,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idiary company M/s. SRF Asset Management Ltd. It was submitted by the appellant during the course of the assessment proceeding that these subsidiary companies were integrally related to the business of the appellant and the advances were given to these companies wholly and exclusively to promote the business interest of the appellant. 10.2 The Assessing Officer did not agree with the contentions of the appellant. He held that no business interest of the appellant was involved since no income accrued to the appellant from such advances. Accordingly, he disallowed a sum of Rs. 20 lacs being the proportionate interest on borrowings on the ground that to this extent the loans taken have been diverted for nonbusiness purposes. The first appellate authority upheld the order of the AO by observing that a) the assessee has not denied that the company has borrowed huge funds, on which huge interest has been paid. b) The business expediency in creating new entities in the shape of subsidiary companies and giving interest free loans, while paying huge interest to third parties has not been explained. c) It is not established whether loans are out of surplus funds or out of borrowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 312,554,000 March 31, 1994 732,879,000 140,077,000 592,802,000 March 31, 1995 1,006,904,000 500,475,000 506,429,000 March 31, 1996 1,819,990,000 400,894,000 1,419,096,000 Total 4,702,697,412 1,237,304,691 3,465,392,721 13. A perusal of the same demonstrates that the propositions based on which we had decided ground No. 3 of the assessee are applicable to the facts of the ground also. The assessee has led evidence to prove his case and hence the decision of the Jurisdictional High Court in the case of Motor General Finance Ltd. (supra) is not applicable as the facts are different. Thus respectfully following the preposition laid down in the judgment of Hon ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd.(supra) and the propositions laid down by the Jurisdictional High Court in the case of CIT vs. Bharti Televenture Ltd. 331 ITR 502 (Delhi High Court) we allow this groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Addition of Rs. 17,93,59,566/- was made by the Commissioner of Income Tax (Appeals) after issuing notice of enhancement. The Assessing Officer had not made the said addition. The Commissioner of Income Tax (Appeals) held that the expenditure under the head, Card Acquisition Expenses had been amortised or divided into two years in the books of accounts and accounts prepared under the Companies Act, 1956. But, in the Profits Loss account etc. prepared for the purpose of income tax, the entire amount was treated as revenue expenditure in one assessment year. The Commissioner of Income Tax (Appeals) held that the assessee being a company was bound to prepare profit and loss accounts and the balance sheet which would give true and fair account of its financial affairs. Reference was made to the provisions of the Companies Act and the Accounting Standard 5, issued by the Institute of Chartered Accountants of India (ICAI), to the effect that the same accounting policy should be normally adopted for similar events and transactions in each period. With reference to Section 145 of the Act, it was observed that CBDT has notified accounting standards vide SO 69(E) dated 25th January, 1996, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006-07, the assessee consequent to change in policy had spread over or divided the expenditure over a period of one year in the books of accounts from the date they were incurred. It is meant that the expenditure could partly fall in the current year and partly in the next year. The change would have imperatively impacted the first assessment year. Albeit, from the second year, it would not make much difference, though the figures for each year would be different. The aforesaid change or modification was restricted to the entries in the books of account and was as per the mandate of the Companies Act, 1956. However, in the Income Tax Return and tax accounts, the earlier method or treatment was continued. Section 145 postulates that accounts should give true and fair picture of the financial position or the income of the assessee. It is further noticeable that the Act i.e. the Income Tax Act, 1961 only refers to capital or revenue expenditure. There is no provision in the Act which postulates or refers to deferred revenue expenditure. Deferred revenue expenditure is, therefore, not as such recognised in the Act. The Act to this extent is at variance and does not accept deferred r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which it is incurred and it cannot be spread over a number of years even though the assessee has written it off in its books over a period of years. It is only in cases of special type of assets that the spread over is warranted.... Judgement of the Supreme Court in Madras Industrial Investment Corp. (supra) was considered and distinguished in CIT vs. Panacea Biotech Ltd. , ITA No. 22 24/2012 and CIT vs. Citi Financial Consumer Fin Ltd. (2011) 335 ITR 29 (Del.), holding that the asseseee s claim to spread over the expenditure over a period of time is tenable provided it is justified as in the case of issue of bonds at a discount. However, the same principle would not apply if the assessee treats the same as revenue expenditure and in fact per Section 37(1) of the Act, the expenditure is revenue in nature and has been incurred or has accrued. This right to claim deferred revenue expenditure is given to the assessee and not to the revenue. In the facts of the present case, as already noticed, the expenditure as per the Commissioner of Income Tax (Appeals) should be partly spread over two years, instead of the year in which it was incurred. But it is accepted and admitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. and M/s. PSEB in view of the following :- (1) Same assets were purchased from M/s. PSEB and M/s. Oswal Sugar Ltd. and leased back to them respectively. (2) The assets involved are old and these parties had claimed 100% depreciation on these assets and therefore the WDV of the assets in the books of the parties at the time of sale to the appellant was Nil. (3) No physical delivery of plant and machinery took place and only title for leased assets were transferred and mere raising of invoice by these parties for sale of the assets cannot really amount to sale of those assets. (4) The assets were part and parcel of their manufacturing units and if those were removed, the units with which they were attached could not be run. 15.3 In the case of transactions with the parties other than PSEB and Oswal Sugar Ltd. the AO questioned the business expediency on the part of the appellant to first purchase those assets and to give them back on lease to the same party. The AO denied depreciation on those transactions alleging it to be a device adopted by the parties for avoidance of the legitimate tax due. 14.3 The Ld. AR submitted the details of depreciatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question is admittedly a sale and lease back transaction where the lessee was already owning the assets which it sold to the appellant and obtained back on lease. The sale took place exclusively for the purpose of leaseback. The two transactions i.e. sale and lease back are distinct transactions and therefore cannot be treated as one transaction. The Appellant had first entered into an agreement to purchase the assets from various parties. The AO has failed to take cognizance of the fact that both the transactions are separate and independent and therefore cannot be regarded as one transaction i.e Finance transaction. - The fact of no physical delivery having been made is of no significance since the leased goods were already with the lessee prior to the lease and it was a case of constructive delivery. - Even as on the date of the transaction, the various items of the equipment had unexpired useful life of approximately 10 years as per the valuation report in the case of agreement with PSEB. - The lease agreement did not have any stipulation for purchase of the assets after the expiry of lease tenure at any pre-determined price. - Merely because the WDV in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e also in agreement with the conclusion of the said High Court that in such cases, the court would have to find out as to what was the real intention of the parties in entering into the sale and lease agreement and that such intention has to be gathered from the words in the said agreement in a tangible and in an objective manner and not upon a hypothetical assessment of the supposed motive of the assessee to avoid tax. We have already indicated that the intention gathered from the documents on record shows that the ownership and title of the said equipment had been transferred to the respondent-assessee and that after the said transfer, the lease was entered into and the said equipment was leased back to the HSEB. It has not at all been established on the basis of evidence on record that the transaction was a colourable device entered into by and between the HSEB and the respondent-assessee. 21. We also note that a similar view has been taken by the Rajasthan High Court in the case of CIT vs. Rajasthan State Electricity Board (2006) 204 CTR (Raj.) 415 and the Gujarat High Court in the case of CIT vs. Gujarat Gas Co. Ltd. (2009) 308 ITR 243 (Guj) which followed the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 997) 2) b) exclusion of net income amounting to Rs. 1,22,77,685/-, which had been offered to tax under the VDIS 1997.c) claim of long term capital loss amounting to Rs. 7,66,867/- d) claim of deduction of Rs. 77,45,779/- in respect of income of non-performing assets, which is not recognised as income in the books of accounts, by following the prudential norms of RBI. 27. The Ld. CIT(A) had at para 18.3, 19.4 and 20.7 held that the issue have not been discussed by the AO and do not emanate from in the asstt. order for the year under consideration. He dismissed the same. The Ld. Counsel for the assessee prayed that these are legal grounds raised by the assessee and that the facts are recorded that the Ld. CIT(A) should have adjudicated these claims on merit. Relied on the following decisions a) CIT vs. V. Nirbheram Daluram 139 CTR 484 (SC) 2) Jute Corporation of India 187 ITR 688 (SC). The Ld. DR opposed these contentions. 28. The Hon ble Supreme Court in the case of Jute Corporation of India Ltd. (supra) has held as follows: The appellant, a Government corporation engaged in the jute industry, had not claimed any deduction of purchase tax liability in its return for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und No. 7 for the asstt. Year 2006-07. On the very same issue we allow this ground of the assessee. 33. Ground No. 4 is challenging the disallowance of claim of depreciation on equipment which has been purchased and leased back to the same parties i.e M/s. Datar Switchgear Ltd. and High Temp Furnance Ltd. Similar issue has been adjudicated by us while disposing off ground No.8 for the asstt. Year 1996-97. Consistent with the view taken therein, we allow this ground of the assessee. 34. Ground No. 5 challenges the decision of the Ld. CIT(A) in not adjudicating the grounds of the assessee on merits for the reason that these issues did not emanate from the order of the AO. The issues in question are (a) disallowance of Rs. 1,27,04,732/- and Rs. 71,475/- being interest on interest tax u/s 12A and 12B of the Interest Tax Act of 1974 (b) carry forward of assessed unabsorbed depreciation and long term capital loss (c) amending the opening written down value which arose as result of disallowance of depreciation in earlier years. Similar issue was adjudicated by us, while disposing off ground No. 10 for asstt. year 1996-97 in ITA No. 3159/D/2004. Consistent with the view taken therein ..... X X X X Extracts X X X X X X X X Extracts X X X X
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