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Section 234B

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Court :
High Court

Brief :
I. Section 246, read with section 234B, of the Income-tax Act, 1961 - Commissioner (Appeals) - Appealable orders - Assessment year 1995-96 - Whether when chargeability of interest under section 234B itself is challenged, then same is appealable - Held, yes II. Section 32 of the Income-tax Act, 1961 - Depreciation - Allowance/Rate of - Assessment year 1995-96 - Assessee-banking corporation had claimed depreciation on certain assets - Authorities below noted that assessee had purchased those assets from two electricity boards and then leased them back to said boards - Accordingly, it was opined that assessee was not entitled to any depreciation under section 32, as assets were not owned by it but were for purpose of security against loan given to parties in course of financing transactions - On appeal, it was noted that assessee was in regular leasing business and thousands of transactions had been entered into by it with various parties for sale and lease back transactions - However, not a single transaction was pointed out by authorities below that was not genuine or was only paper transaction - Moreover, in respect of assets-in-question, any liability on account of insurance premium or theft, damage, etc., was on assessee - Whether, on facts, authorities below were not justified in doubting transactions entered into by assessee merely on basis of suspicion or conjectures - Held, yes - Whether, therefore, Assessing Officer was to be directed to allow claim of depreciation on all items claimed by assessee - Held, yes

Citation :
ICICI Ltd. v. Joint Commissioner of Income-tax - [2008] 115 ITD 25 (MUM

Facts-I The revenue had levied certain amount of interest under section 234B on the assessee, a banking corporation. The Commissioner (Appeals) dismissed the assessee’s appeal by holding that no appeal was maintainable against levy of interest under section 234B. On instant appeal, the assessee contended that assessed tax was more than advance tax due to certain additions/disallowances which could not have been foreseen when advance tax was paid. Thus, in such circumstances, impugned interest could not be charged. Held-I In the instant case, the assessee had not challenged the quantum of interest but chargeability of interest under section 234B itself. The Supreme Court in the case of Central Province Manganese Ore Co. Ltd. v. CIT [1986] 160 ITR 961/27 Taxman 275 has held that where chargeability of interest itself is challenged, then the same is appealable. As stated above, the assessee had challenged the chargeability of interest under section 234B; therefore, the issue had to be decided on merit. The assessee had placed reliance on the decision of the Uttranchal High Court in case of CIT v. Sedco Forex International Drilling Co. [2003] 264 ITR 320/[2004] 134 Taxman 109, contending that in similar circumstances the High Court had held that interest under section 234B could not be charged. Since no decision had been given by the Commissioner (Appeals) on merit, the issue was to be restored to the file of the Commissioner (Appeals) to decide the same afresh on merit after affording an opportunity of being heard to the assessee and after taking into consideration the provisions of law as well as the decision of the Uttaranchal High Court in the case of CIT v. Sedco Forex International Drilling Co. Ltd. [2003] 264 ITR 320/[2004] 134 Taxman 109. [Para 26] Facts-II The assessee had claimed depreciation in respect of certain assets. The Assessing Officer noted that the assessee had purchased said assets from two electricity boards and then leased them back to the said boards. Thus, the Assessing Officer treated those transactions as loan transactions and taxed the interest component on said transactions. On appeal, the Commissioner (Appeals) held that the assessee was not entitled to any depreciation under section 32, as the assets were not owned by it but were for the purpose of security against loan given to parties in the course of financing transactions. On second appeal : Held-II The assessee had rightly placed reliance on the Explanation 4A(2) to section 43(1) and Board’s Circular No. 762, dated 18-2-1998 that the Explanation was introduced in order to curb the higher claim of deprecation by the lessor. In order to curb such transactions, an amendment had been made to deal with a case where the assets had been sold and then 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 would be taken to be the written down value at the time of transactions of the assets in the hands of the seller who, subsequently, acquired the assets by the way of hire, lease or otherwise. The Explanation 4A to section 43(1) supported the case of the assessee. The Legislature is well aware of such type of transactions and to curb the higher depreciation, this Explanation was introduced to section 43(1) with effect from 1-10-1996, therefore, it could not be said in any way that the sale of lease back transaction was not a genuine transaction. [Para 32.3] Without bringing any material on record regarding a specific item that the transaction was not genuine, formation of a general opinion at the end of the Assessing Officer and again at the end of the Commissioner (Appeals), that the transaction was not genuine either on the facts of the instant case or in the eyes of the law, could not be approved of. [Para 32.9] Circular No. 2 of 2001, issued on 9-2-2001 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 would have no implication on the allowance of the depreciation on assets. From the instructions of the Board and from the circular issued by it, it is clear that nowhere it is suggested that lease back transactions are doubtful transactions or that depreciation is not allowable. However, it has been suggested to the departmental authority that they should be regulated. The word ‘regulated’ does not mean that the assessee is not entitled to depreciation. [Para 33] The Commissioner (Appeals) had gone on the basis of a general presumption that the assets had been leased out to the bank just to secure the amount given on loan, otherwise there would be no occasion for sale and lease back transactions with the bank. The Commissioner (Appeals) had considered various aspects and had confirmed the findings of the Assessing Officer that the transactions were non-genuine, as they were colourable devices just to reduce the tax burden by claiming higher depreciation. The Commissioner (Appeals) had not taken into consideration the aspect that the assessee was in regular leasing business and about 7,000 transactions had been entered into by it with various parties for sale and lease back transactions. The assessee, which was a banking corporation, was maintaining all the records in regard to each and every item. Proper profit and loss account was maintained. All the details were furnished and not a single transaction was detected by the Assessing Officer which was not genuine or was only a paper transaction. [Para 36] The lease rental was received regularly and had been shown in the profit & loss account. The other parties who were paying lease rentals to the assessee had shown lease rental paid to the assessee. The department had not brought a single case on record that the parties who had paid lease rentals had not shown/claimed the deduction on account of lease rentals but had claimed deduction of interest paid to assessee-bank. In one case the lease rental paid was claimed as deduction. However, department treated said payment as interest on lease. The Jaipur Bench of the Tribunal had allowed the claim of that party. The High Court had confirmed the view of the Tribunal in CIT v. Rajasthan State Electricity Board [2006] 160 Taxman 19 (Raj.). Assets were shown in the block of assets. Whenever these assets were taken back they were shown as such and whenever these assets were sold they were shown as sold. Insurance cover in respect of the items involved in such transactions was in the name of the assessee. Any liability on account of insurance premium or on account of theft, damage, etc., was on account of the assessee. Therefore, merely on suspicion or conjectures, doubting that the transactions were entered into by the assessee for claiming higher depreciation, was not justified either at the end of the Assessing Officer or at the end of the Commissioner (Appeals), who had enhanced the disallowance on the entire transactions entered into in the year under consideration. In view of the above stated facts and the circumstances, the orders of the authorities below were to be set aside and the Assessing Officer was to be directed to allow the claim of depreciation on all items claimed by the assessee. [Para 36.1]
 

CA Pawan Goswami
on 10 November 2008
Published in Income Tax
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