ORDER
R.K. Gupta, Judicial Member
1. These are two appeals by the assessee and the department against the order of the CIT(A) relating to AY 95-96.
Similar issues are involved in all these appeals, therefore, for the sake of convenience, they are disposed off by this single order.
2. First we shall take up the appeal of the assessee in ITA No. 3536/Mum/99:
3. As many as 30 grounds of appeal have been taken by the assessee while filing the appeal on 25.6.99. Thereafter the assessee has filed summarized grounds of appeal vide letter dated 12.5.2006 which are 18 in number. The assessee; has also filed a chart of grounds wherein the dispute, amount, para No., and page No. along with the reasons given by the AO and the CIT(A) have been mentioned. In remarks column the comments/contentions along with citation have been mentioned and it has been further clarified that some of the issues are covered either in favour of the assessee or in favour of the department. Some of the grounds are not pressed and in remarks column it has been mentioned as not pressed. It was submitted by the Id AR that the summarized grounds and the issues shown in the chart arc in consonance with the grounds taken originally at the time of filing of appeal, therefore, the summarized grounds may be taken in to consideration.
Ground 1A is against disallowance under Rule 6D at Rs. 1,47,165/.
4. It has been stated in the chart that this issue has to be decided against the assessee in view of the decision of the Bombay High Court in the case of Arrow India Ltd. reported in 229 ITR 325. Therefore, the same is decided against the assessee.
5. Ground 2B is against disallowance Under Section 37(2A) at Rs. 3,84,986/.
6. This issue has to be decided against the assessee, as the same was not pressed during the course of hearing. Accordingly, this ground is dismissed.
7. Ground 3C is against disallowance of earlier year’s expenditure at Rs. 18,94,929/-.
8. Similar addition was made and upheld by the CIT(A) in earlier years. The Tribunal while deciding the appeal for AY 92 93 to 94 95, 96 97 and 97 98 has allowed similar ground. Therefore, we direct the AO to modify his order in this regard in view of the decision of the Tribunal for earlier years as well as subsequent year.
9. Ground 4D is against disallowance of capital expenditure at Rs. 3,08,357/.
10. This issue has to be decided against the assessee, as the same was not pressed during the course of hearing. Accordingly, this ground is dismissed.
11. Ground 5E is against disallowance Under Section 37(4).
12. This issue has to be decided against the assessee in view of the decision of the Supreme Court in the case of Britaina Industries reported in 278 ITR 546. Therefore, the same is decided against the assessee.
13. Ground Nos. 6F, 7G, 8H and 10J which are in regard to disallowance of deprecation as per revised return, additions of write backs previous years sought to be taxed, disallowance Under Section 37(1) and deduction Under Section 36(1)(viia) were not pressed and therefore, these grounds are dismissed as not pressed.
14. Ground No. 11K, which is in regard to deduction Under Section 36(1)(viii).
15. This issue has to be decided against the assessee as on similar facts the Tribunal decided the issue against the assessee for AY 86-87. Therefore, the same is decided against the assessee.
16. Ground No. 9 1 is against disallowance of expenses while computing deduction Under Section 80M at Rs. 32,70,717/-.
17. The AO held that deduction Under Section 80M is to be allowed on net dividend income after reducing estimated expenses for earning dividend i.e. @ 1% of gross dividend as per past years. The CIT(A) held that proportionate management expenses to be deducted from gross dividend as per Supreme Court, decision in the ease of United General Trust Ltd. Thus expenses estimated @ 1% of gross dividend made by the AO was upheld by the CIT(A).
18. Similar disallowances were made by the AO for AY 89-90 and 90-91. The Tribunal while deciding the appeal for AY 89-90 held that 1% of the salary only be considered as expenses for earning dividend. However, while deciding the appeal for AY 90 91, the Tribunal upheld the expenses estimated at 1% for earning dividend. Now, it was submitted by the Id counsel of the assessee that Bombay High Court has held that no disallowance can be made while computing the deduction Under Section 80M. This decision was rendered by the Bombay High Court in the case of CIT v. Emerald Co. Ltd. reported in 284 ITR 586. Further reliance on the decision of Bombay High Court in the case of CIT reported in 251 ITR 203 and in the case of State Bank of Indore reported in 275 ITR 23 On the other hand, the Id DR placed reliance on the orders of the authorities below.
19. After considering the submissions and perusing the material on record we find that this issue is covered by the decision of the Bombay High Court in the case of Emerald CO Ltd. (supra) wherein it has been held “that the interest on the overdraft and the expenses were related to the business of trading in shares and ought to be allowed as computed income under the head “business”. The said expenses could not once again be deducted from the dividend income for the limited purpose of computing the deduction Under Section 80M of the Act. There was no statutory provision requiring the AO to deduct the same expenses under the different heads of income. Since the income by way of dividend included in the gross total income was Rs 1,34,984/- deduction Under Section 80M had to be granted with reference to the said amount of Rs. 1,34,984/-.
20. In view of the decision of the Bombay High Court, we are of the view that no disallowance on account of expenses can be made while computing deduction Under Section 80M. We have seen the order of the Tribunal also in the case of the assessee itself and found that the decision of the Bombay High Court was not cited, therefore, the same could not be taken into consideration. With utmost respect and in view of the decision of the Bombay High Court, we are taking this view that no disallowance can be made Under Section 80M. We order accordingly.
21. Ground No. 12L is against charging of interest Under Section 234B at Rs. 11,75,39,061/-.
22. The ground against levy of interest Under Section 234B was raised before the CIT(A). However, the Id CIT(A) dismissed the ground by observing that the interest Under Section 231B is mandatory and therefore, the same is not appealable. The CIT(A) has further observed that various Courts have held that no appeal lies against the levy of interest as appeal is a creation of statute and an assessee can claim right of appeal only if he can bring his claim within the fold of se. 246.
23. The Id counsel, who appeared before the Tribunal stated that the assessed tax is more than advance tax due to certain addition/disallowances which could not have been foreseen when advance tax was paid. It was further submitted that on the facts of the present case, these provisions are not attracted and no interest can be levied for alleged default due to variations made in assessment order beyond envisaged or provided under the Act. Reliance was placed on the decision of the Hon’ble Uttranchal High Court in the case of Sedco Forex International Drilling Co Ltd. reported in 261 ITR 320. On the other hand, the Id DR placed strong reliance; on the order of the CIT(A).
24. After considering the submissions and perusing the material on record, we find that the assessee has not challenged the quantum of interest but has challenged chargeability of interest Under Section 234B itself. The Supreme Court in the case of Central Province reported in 160 ITR 961 has held that where chargeability of interest itself challenged then the same is appealable. As stated above, the assessee has challenged the chargeability of interest Under Section 234B; therefore, the issue has to be decided on merit. The Id counsel of the assessee has placed reliance on the decision of Hon’ble Uttranchal High Court that on similar circumstances the High Court has held that interest Under Section 243 B cannot be charged. Since no decision has been given by the CIT(A) on merit, therefore, we set aside this issue to the file of the Id CIT(A) to decide the same afresh on merit alter affording opportunity of being heard to the assessee and after taking into consideration the provisions of law as well as the decision of the Hon’ble Uttaranchal High Court in the case of Sedco Forex International Drilling Co. Ltd. (supra). We order accordingly.
25. The remaining grounds i.e. ground Nos. 13M and 14N, which relates to disallowance of depreciation on sale and lease back of assets (SLB) to Gujarat Electricity Board (GEB) and Rajasthan Stale Electricity Board (RSEB) and on other assets leased during the year under consideration respectively.
26. Since both these grounds are inter linked, therefore, for the sake of convenience, they are disposed off together.
27. Briefly stated facts of the case are that during the course of assessment proceeding, the AO noticed that the assessee has claimed depreciation of Rs. 2,78,16,90,877 by filing return of income. In the revised statement, depreciation claimed was at Rs. 2,78,99,16,523/. The reason for revising the deprecation claim was given by the assessee; that certain additions were made in AY 93-94. Thus, these additions were confirmed by the CIT(A). Although the additions still being disputed before the Tribunal, it has revised the statement on the basis of addition made in the earlier years. This contention of the assessee was not accepted by the AO. Therefore, depreciation claimed in the original return was only taken into consideration by the AO for the purpose of allowability of the same. The AO further noted that in earlier year, the assessee has claimed depreciation on boiler plant auxiliaries worth Rs. 175 crores purchased from GEB and, same were leased back to GEB. The AO further noticed that similarly the assessee has purchased the assets from RSEB in earlier year i.e. AY 94-95 and they were leased back to RSEB. The case was examined in earlier year in detail and the claim of the assessee of 100% depreciation was negated by holding that the transactions were of loan transaction. The AO further noticed that in similar manner, the claim of the assessee was negated for AY 93-94 also. In view of the past history, the AO disallowed the depreciation claim of 100% on the assets purchased from two Boards i.e. GEH & RSEB. Since the claim of the assessee was disallowed by the AO on account of assets leased out to these Electricity Boards were excluded from the total income of the assessee because the AO has treated the transaction as loan transaction and interest component on these transactions was taxed only by the AO. The total depreciation disallowed on account of allegedly leased to GEB and RSEB was at Rs. 106.50 crores. The CIT(A) upheld the order of the AO on the ground that sale and leased back transaction with GEB and RSEB are in fact loan transactions. By further observing that the assessee company was not an owner of the assets and hence if was not entitled to depreciation, the order of the AO denying depreciation at Rs. 106.50 crores was upheld Thereafter, the CIT(A) examined the issue in regard to the remaining claim of depreciation i.e. on other items leased out during the year under consideration. After considering the details and submissions, the CIT(A) found that the assessee is not entitled to any depreciation Under Section 32 as the assets are not owned by it but was for the purpose of security against loan given to parties in the course of financing transactions. Accordingly, the AO was directed to disallow the claim of depreciation on other items claimed during the year under consideration.
28. Firstly the Id AR who appeared before the Tribunal reiterated the contentions raised before the lower authorities. Thereafter, the Id counsel Shri S.E. Dastur, Sr. Advocate stated that though there is a decision of the Special Bench of the Tribunal in the case of Mid East where the assessee was also one of the parties and the Special Bench, has decided the issue against the assessee but the Hon’ble Rajasthan High Court in the case of RSEB reported in 201 CTR 415 has held that transactions entered into between RSEB with ICICI Bank (the assessee) are genuine and the lease rental paid by RSEB has to be allowed as deduction. Therefore, it was submit led that now the issue is squarely covered by the decision of the Rajasthan High Court in favour of the assessee. further reliance was placed on the decision of the Hon’ble Calcutta High Court in the case of SBI Home Finance Ltd. reported in 280 ITR 6 and on the decision of the Bombay High Court in the case of Prakash Industries. (Copies of these decisions arc placed on record). Thereafter, the Id counsel of the assessee made lengthy arguments and attention of the Bench was drawn on various pages of the compilation. It was further submitted that if the departments stand is allowed then nobody will be entitled for depreciation i.e. either the lessee or the lessor, which is against provisions of law. It was further submitted that the assessee, who is in the banking industry, is in regular business of leasing of assets since long i.e. about 23 years. It was further submitted that the bank has entered into 700 agreements pertaining to loan transaction, which involves about 7000 equipments. It was further submitted that up to AY 92-93, the department itself has allowed the claim of the assessee regularly. The transaction in past and transaction after 1992-93 are identical. However, from AY 93-94 onwards the department is taking different view, which is against the rule of consistency. It was strongly stated that the AO disallowed the claim of only one item during AY 93-94 and for AY 95-96 only on two items. However, the Id CIT(A) has disallowed the claim on entire items. Neither the factual position of the entire assets were examined nor lease agreement which were in voluminous as they were 700 in number, were seen by the CIT(A). The Id CIT(A) has taken a general view that all these agreements are nothing but to secure itself against the loan amount advanced by the assessee. The approach of the Id CIT(A) should not be and cannot be upheld as the assessee who is involved in regular business transaction of lease since long. Attention of the Bench was drawn on various portions of the decision of the Bombay High Court in the case of Prakash Industries and the decision of the Calcutta High Court in 280 ITR 6. It was further submitted that SLP against the decision of the Bombay High Court has been dismissed by the Supreme Court. Attention of the Bench was also drawn on the copy of the order placed in the paper book.
28.1 It was further submitted that over 50% of the total capital is held by the financial institution and UTI. The assessee company is not a private company of few persons. This is a Banking company, where public are substantially interested. Therefore, it is not so simple to say that the assessee company was indulging collusive transaction with various parties including Govt. institutions i.e. GEB & RSEB. The assessee is the owner of the assets, which were leased out, and there should not be no dispute in respect of genuineness of transaction with GEB & RSEB as they have confirmed this fact. Both the Boards were paying lease rent regularly and the same has been offered for taxation. It was further submitted that from the day one the assessee’s stand is that these are lease agreement, however, the department is saying that these are loan agreements. Neither there is any evidence nor there is any other information with the department to treat these transactions as loan. It was further submitted that the department has relied upon the decision of the Apex Court in the case of McDowell. However, the ratio in the case of McDowell has been considered by the Apex Court in the case of Azadi Bachao wherein it has been clearly laid down that without bringing any strong evidence on record, contention of the assessee cannot be negated merely by saying that this is colorable device. It was further explained that after the decision of the Special Bench in the case of Mid-East, various benches have passed further orders and after taking into consideration the decision of Mid-East on the similar facts, the claim of the assessee has been allowed by the Tribunal. It was further submitted that Chennai Bench, in the case of Investment Trust of India reported in 103 ITD 653 has taken a view that on leased back transaction (LSB), the claim of the assessee is allowable. It was further stated that one of the member who was party in case of the Mid Hast was also party to the decision in Chennai Bench who decided the issue in favour of the assessee;. Attention of the Bench was drawn on the copy of the order of the Chennai Bench. It was further explained that Explanation 4A to Section 43(1) which was brought on statute w.e.f Oct 96 supports the case of the assessee. Attention of the Bench was also drawn on various case laws mentioned in the chart available on the record of the Bench.
28.2 The Id DR on the other hand placed strong reliance on the orders of the authorities below. Further reliance was placed on the decision of the Special Bench in the case of Mid-East reported in 98 ITD 319. It was further submitted that the decisions on which the reliance has been placed by the Id AR have already taken into consideration by the special bench in the case of Mid-East. It was further submitted that in the case of Mid-East, the assessee was one of the parties. Therefore, in view of consistency, the decision of Special Bench, which is binding in nature, should be followed. Further reliance was placed on the decision reported in 266 ITR 178 and 188 ITR 1.
28.3 In reply, the Id counsel of the assessee again explained the facts once again and staled that there was a constructive delivery in the present case and after the decision of the Mid East and the decisions reported in 266 ITR 178 and 188 ITR 1 there are further developments as now the Hon’ble Rajasthan High Court who after taking into consideration the decision of Special Bench in the case of Mid-East held that these transactions are genuine. The various Benches of the Tribunal have taken a contrary view to the view taken in the case of Mid-East. Therefore, rule of consistency is in favour of the assessee because in subsequent developments similar issue has been decided in favour of the assessee.
29. We have heard rival submissions and considering them carefully. We have also perused all the relevant material on which our attention were drawn by the respective parties along with various cast laws relied upon.
30. The Id Departmental representative has strongly stated that, the issue has already been decided by the Special Bench in which the assessee was one of the intervener. The Special Bench in case of Mid-East has held that the transactions of lease buy back were not genuine and the ratio of the decision in case of McDowell is applicable. We find that the decision of the Special Bench in case of Mid-East have been considered by Hon’ble Rajsthan High Court in case of CIT v. RSEB reported in 201 CTR 415 and held that the transaction entered into between RSEB and ICICI (the assessee) are genuine. The lease rent paid by RSEB was allowed as deduction by the Hon’ble Rajsthan High Court. In that case AO held that the sale of lease back transaction were sham in the light of the McDowell’s case. The CIT(A) upheld the decision of the AO. However, Tribunal allowed the appeal of the RSEB. The Hon’ble High Court observed that the transaction of the sale took place between the parties as Ann’s length. The Hon’ble High Court has also observed that explanation 4A to the Section 43(1) which was introduced by the legislature w.e.f. 1.10.1996 in order to curb the claim of higher depreciation in cases where the assets had been sold and acquired by the assessee by way of hire, lease or otherwise. The Hon’ble Rajasthan High Court has taken into consideration the decision of the Hon’ble Karnataka High Court in case of Avasrata Automation 266 ITR 178 relied upon by the Id DR. The decision of the Special Bench in case of Tej International Private Ltd., was also taken into consideration by the Hon’ble Rajsthan High Court wherein it has been observed that “once the authority higher than the Tribunal has expressed an opinion on the issue before the Tribunal, it is not permissible for it to rely upon the contrary decision by the Tribunal included by a Special Bench. The fact that the judgment was rendered by High Court other than the jurisdictional High Court does not alter the position”.
30.1 Therefore, now the circumstances has been changed as the decision of the Special Bench in case of Mid-East (supra) has already been distinguished and considered by the Hon’ble High Court, therefore, we are not inclined to consider that decision at this point of time.
30.2 In case of George William Sons of Assam Ltd. (supra), it has been held by the Hon’ble Guwahati High Court that actual delivery does not mean physical possession of the assets. The symbolic delivery has taken place as per the agreement. It is a valid delivery/sale as per that the definition of the delivery of goods in Section 33 of sale of goods Act 1930. After observing these observations, the Hon’ble High Court has held that the assessee’s Board and lessor with various companies had entered into a genuine agreement. Accordingly the claim of the assessee was allowed by the Hon’ble High Court.
30.3 The Id Counsel has rightly placed reliance on explanation 4A(2) Section 43(1) of the Act, Board circular No. 762 dated 18.2.1998 reported in 230 ITR 12, 31 ST that this explanation was introduced in order to curb the higher claim of deprecation by the lessor. In order to curb such transaction, an amendment had been made to deal with a case where the assets had been sold and acquired by any assessee by way of hire, lease or otherwise. In such a case the actual cost for the purpose of deduction of depreciation allowance shall be taken to the written down value at the time of transaction of the assets in the hands of the seller but subsequently acquired the assets by the way of hire, lease or otherwise. The explanation 4A Section 43(1) support the case of the assessee. The legislature is well aware of such type of transaction and to club the higher depreciation, this explanation was introduced to Section 43(1) w.e.f. 1.10.1996, therefore, it cannot be said in anyway that the sale of lease back transaction are not genuine transactions.
30.4 The Hon’ble Orissa High Court in case of Industrial Development of Orissa (supra) has allowed depreciation Under Section 32 of the Act on account of purchase and lease back of assets. While allowing the claim of depreciation Under Section 32 the; Hon’ble High Court has observed that there was no evidence which suggested that the transaction were not genuine. In that case also the lessor entered into a purchase cum-lease agreement with Orissa State Electricity Board for generation, distribution and supply of Electricity and there was no finding, evidence or material that the findings of the Tribunal was based only on conjecture, suspicion and surmises and was otherwise perverse. Accordingly the transaction of sale and lease back were held as genuine; and depreciation was allowed. The decision of the Hon’ble Orissa High Court has been further fortified by the Hon’ble Guwahati High Court in case of CIT v. George William Sons of Assam Ltd. In the said judgment, the decision of the Hon’ble High Court, in case of Union of India. v. Azadi Bachao Andolan (supra) by which the decision of the Hon’ble Madras High Court in case of M.V. Valiappan and Ors. 170 ITR 238 was approved.
30.5 In case of M.V. Valiappan and Ors. the Hon’ble Madras High Court had held that the decision in case of McDowell (supra) cannot be read as laying down that every attempt at tax planning is illegitimate and must be ignored or with every transaction or arrangement, which is perfectly permissible under law, which has the effect of reducing the tax burden or the assessee must be looked upon with disfavour. In view of the aforesaid legal principle laid down by the Hon’ble Supreme Court, it is clear that the principle laid down by the IRC v. Duke of Westminster are still applicable in this country and it is open to assessee to arrange their affairs in such a manner that it would not attract the tax liability, if it cannot be managed within the permissible liability of law. As stated above, in this decision the decision in case of McDowell have considered. Thereafter in case of Azadi Bachao Andolan, the Hon’ble Supreme Court has approved the decision of the Madras High Court. Therefore, with utmost respect regarding the decision of the McDowell, we are of the considered view that in each and every case it cannot be said that the transaction are malefidely and are not genuine, therefore, the depreciation should not be allowed to the assessee. In the present case the transactions were entered into with Electricity Boards and these Boards are Government bodies, therefore, there cannot be any scope for collusion.
30.6 The Hon’ble Calcutta High Court in case of Competent Authority v. Smt. Bani Roy Choudhary 131 ITR 578 has held that “where the transferor or transferee is the Government or a statutory body there cannot be any scope for such collusion between the Parties. The untrue statement about the agreed consideration is made only for the purpose of the evasion of tax. When the Government or statutory body is a party to the transfer, the question of evasion of tax does not arise. If the presumption under Clause (b) of Section 269C (2) is applied, it will mean that the untrue statement regarding the agreed consideration is made also at the instance of the Government or the statutory body which is absurd.”
30.7 In case of S.B.I. Home Finance v. CIT 280 ITR 6 the Hon’ble Calcutta High Court has held that the transactions were genuine. In this case the Finance Company had entered into lease agreement, which was not accepted by the Departmental authority as genuine transaction and the claim of the depreciation was negative. The Hon’ble High court has held that even though the premises of the lease given to 3rd party an option to purchase the property the right to such option does not affect the ownership of lessor and the lessor was accordingly entitled to depreciation.
30.8 We have also seen the decision of the Bombay High Court in case of Developmental Credit Bank Ltd. v. Prakash. Industries wherein, the Hon’ble Bombay High Court after examining the clauses of the lease agreement had come to the conclusion that the lessor bank had purchased the machinery as owner of the asset and was leased to the lessee based on terms and conditions which was to be returned to the lesser bank on the expiry of the lease. The lessee do not have any ownership rights in respect of the lease equipments and the Hon’ble Bombay High Court has held that the lessor is the owner and therefore, is entitled for depreciation. Though, this decision of the Hon’ble Bombay High Court was taken into consideration by the Special Bench in case of Mid-East and after observing that the facts before the Hon’ble Bombay High Court were that in that case the transaction itself were not doubted but in case of Mid-East the genuineness of the transaction itself were challenged by the department. With all respect with the observations of the Special Bench in case of Mid-East, we find that this is the stand of the department that the transactions are not genuine but the assessee is objecting from the day one that all the transactions were genuine as this is regular business of the assessee for last so many years and department has itself accepted the transaction as genuine in past and had allowed the depreciation claimed by the assessee;.
30.9 Without bringing any material on record regarding a specific item that the transaction is not genuine, in our considered view formation of a general opinion at the end of AO and again at the end of the Id CIT(A) that the transaction are not genuine either on the facts of the present case or in the eyes of the law, in our considered view that the formation of general opinion cannot be approved.
30.10 The Id Counsel of the assessee has invited our attention on some of the clauses of the agreements, which were similar to the clause of the agreement before the Hon’ble Bombay High Court in case of Developmental Credit Bank Ltd. v. Prakash Industries (supra). We have seen these clauses and found that these are similar clauses in case of Developmental Credit Bank Ltd. v. Prakash Industries (supra). Therefore, we are of the considered view that the both the lower authorities were not justified in rejecting these agreements and holding that there was colourable device to claim higher depreciation.
31. We have also taken into consideration various decisions of the Tribunal i.e. in case of West Coast Paper Mill Ltd. v. JCIT decided in ITA No. 2154/B/99(Mum), in case of JCIT v. Invest Well Publishers Private Ltd. (Mum) and in case of JCIT v. Investment Trust of India Ltd. 103 TTJ 653 (Chennai) and found that the ratio of these decisions are squarely applicable on the present case. In these cases also the depreciation on sale of lease back (SLB) transaction were denied and after taking into consideration the various cases including the Special Bench in case of Mid-East, the various Benches of the Tribunal has taken a view that the transactions were genuine and the respective assessees were entitled for depreciation.
31.1 We have also seen the Board instruction No. 1978 dated 31.12.1999 issued by CBDT suggesting guidelines for investigation in the case of finance lease agreement. These instructions issued by the Board show that SLB transaction as such are not to be disapproved but are only to be regulated by the assessing authority. We have also seen circular No 2 of 2001 issued on 9.2.2001 which states that the accounting standards on lease issued by the Institute of the Chartered Accountants of India, which required the lessee to capitalize the assets in case of financial lease will have no implication on the allowance of the depreciation on assets. From the instructions of Board and from the Circular issued by Board, it is clear that nowhere it is suggested that lease back transactions are doubtful transaction or depreciation is not allowable however, it has been suggested to the departmental authority that they should be regulated. The regulated word does not mean that assessee is not entitled for depreciation.
32. We have also taken into consideration the decision in case of DCIT v. Housing Development and Finance Corporation 98 ITD 319 on which the reliance was placed by Id DR. The Tribunal has held that the lease agreement between the parties was financing arrangements, which has been given the colour of lease transaction by adopting a device. This decision of the Tribunal has been considered in case of Jt. CIT v. Invest Well Publishers Private Ltd. (Mum) wherein, the depreciation claimed by assessee was allowed on similar transactions. We further noted that in case of Housing Development and Finance Corporation (supra), the assessee was not in the business of leasing whereas, the present assessee carrying on business of leasing since 1983 and the claim of the assessee had been allowed up to the A.Y. 1992-93, therefore, with utmost respect, we are not inclined to follow the decision in case of Housing Development & Finance Corporation but inclined to follow the decision in case of Invest Well Publisher Private Ltd., whereby the decision in case of H.D.F.C. has been considered
33. In a recent decision in case of DCIT v. Global Tele System Ltd. in ITA No. 1085/MUM/1998 vide order dated 30.11.2006 has allowed the claim of the assessee by dismissing the appeal of the Department. In that case also the assessee claimed depreciation of Rs. 3.42 Crores on Surface Making Oven. These assets were sold by Tata Engineering and Locomotives Company to M/s Classic Finance Services Enterprises for a consideration of Rs. 3.42 Crore. M/s Classic Finance Services made full payment of Rs 3.42 Crores to M/s. Telco and sold the same assets to M/s Global Tele System under Hire & Purchase agreement date 20.6.1993. M/s Global Tele System gave assets on lease to Telco under an agreement dated 27.9.1993. The assessee claimed depreciation @ 100%, however, AO denied the claim of depreciation by holding that all these transactions are colourable to reduce the tax burden. The CIT(A) allowed the claim of the assessee. On further appeal, the Tribunal discussing the issue at great length and after considering the decision of the Mid-East port folio and the decision of the Chennai Bench reported in 102 ITD 135 (TM) whereby the decision of the Mid-East port folio was considered and distinguished, allowed claim of the assessee. Other cases were also taken into consideration along with the decision of the Hon’ble Rajsthan High Court in case of CIT v. Rajsthan Electricity Board 201 CTR 439 and the decision of Sharyans Resources 83 ITD 340 and in case of DCIT v. Sony Capital Market Ltd. and also the decision of the Jodhpur Bench in case of Shree Rajasthan Syntex Ltd. 93 ITD 78 then allowed the claim of the assessee.
34. We have also taken into consideration the decision of the CIT(A) and found that the Id CIT(A) has gone on the basis of general presumption that the assets were leased out to the bank just to secure the amount given on loan otherwise there was no occasion to sale and lease back transaction with the bank. The CIT (A) has considered various aspect and confirmed the findings of the AO that the transactions were non-genuine as they were colourable just to reduce the tax burden by claiming higher depreciation. The CIT(A) has not taken into consideration the aspect that the assessee is in regular leasing business and about 7000 transactions have been entered into by the assessee with various parties for sale and lease back. The assessee who is a banking corporation is maintaining all the records in regard to each and every item, proper Profit & Loss A/c is maintained. All the details were furnished and not a single was detected by the AO that these are not genuine or are only paper transactions transaction.
34.1 The lease rental is received regularly and has been shown in the Profit & Loss A/c. The other parties who are paying lease rentals to the assessee have shown lease rental paid to the assessee. The department has not brought a single case on record that the parties who had paid lease rental has not shown/claimed the deduction on account of lease rental but has claimed deduction of interest paid to assessee bank. In one case i.e. in the case of RSEB the lease rental paid was claimed as deduction. However, department treated this payment as interest on lease. The Jaipur Bench of the Tribunal allowed the claim of RSEB. The High Court has confirmed the view of the Tribunal in 204 CTR 4 15. Assets are shown in the block of assets. Whenever these assets were taken back they were shown as taken back and whenever these assets were sold they were shown as sold. Insurance cover in respect of the items involved in these transactions is in the name of assessee. Any liability on account of insurance premium or on account of theft, damage etc is on account of assessee. Therefore, merely on suspicion or conjectures, doubting the that the transactions are entered into for claiming higher depreciation, in our considered view were not justified either at the end of the AO or at the end of Id CIT(A), who enhanced the disallowance on the entire transactions entered in to in the year under consideration. In view of the above facts and the circumstances, we set aside the orders of the authorities below and direct the AO to allow the claim of depreciation on all items claimed by the assessee. We order accordingly.
35. Now we will take up the appeal of the department in ITA No.
3535/Mum/99
36. In ground No. 1, the department is objecting in deleting the addition of Rs. 1,17,165/ made u/4 6D relying on the order for AY 1988-89 to 1990-91
37. This ground was involved in the appeal of the assessee also. We have decided this issue against the assessee while disposing the appeal of the assessee. Therefore, for the reasons given in our order while deciding the appeal of the assessee, we reverse the order of the CIT(A) and restore the order of the AO in this regard. We order accordingly.
38. Ground No. 2 relates to deletion of addition of Rs. 3,84,985/.
39. This issue was also involved in the appeal of the assessee and we have already disposed off this ground of appeal by which we have confirmed the order of the AO. Accordingly, the ground of the department is also disposed off in favour of the department and the order of the AO is confirmed in this regard.
40. Ground No. 3 relates to deletion of addition of Rs. 12,000/- being club expenses.
41. The CIT(A) allowed the ground by following the order for AY 90-91. We do not see any infirmity in the findings of the CIT(A), who allowed the claim of the assessee following the order of his predecessor. Therefore, this ground of the department fails
42. Ground No. 1 relates to deletion of addition of Rs. 2,51,109/- made Under Section 37(4).
43. This issue has to be decided against, the assessee in view of the decision in case of Britannia Industries reported in 278 ITR 546. Therefore, we reverse the order of the CIT(A) and restore the order of the AO in this regard. We order accordingly.
44. In the result, the appeal of the assessee and the department are allowed in part.
Order pronounced in the open court on this 15th, day of Feb. 2007.