Delhi High Court
Hindustan Commercial Investment Trust ... vs Dy. Cit on 30 July, 2003
Equivalent citations: (2004)90TTJ(DEL)346
ORDER
Ram bahadur, J.M.:
This appeal by the assessed arises out of the order of the Commissioner (Appeals)-XIV, New Delhi, dated 22-2-1995, for the assessment year 1991-92.
2. Below reproduced are the grounds of appeal :
"I (1) The learned Commissioner (Appeals) has erred on facts and in law in upholding the disallowance of depreciation amounting to Rs. 24,99,750 on computers purchased from M/s. Pertech Computers Ltd. (PCL) and leased out in the normal course of the business of the appellant.
(2) On the facts, evidence and material on record, the learned Commissioner (Appeals) should have held that the computers in question had actually been purchased by the appellant-company and the ownership of the said computers was that of the appellant-company and the appellant-company was fully entitled to claim depreciation on the same.
(3) The view taken and reasoning relied upon by the learned Commissioner (Appeals) in upholding the disallowance of the impugned depreciation are vitiated and bad in law.
(4) In any case and without prejudice to the above ground, the learned Commissioner (Appeals) omitted to decide the ground in regard to the quantum of the disallowance of depreciation of Rs. 24,99,750 against which the actual claim of the appellant was restricted to 75 per cent of Rs. 24,99,750 amounting to Rs. 18,74,812 in accordance with the provisions of section 34A of the Act.
II. The learned Commissioner (Appeals) has also erred on facts and in law in upholding the following disallowances :
(a) Rs. 11,827 out of car expenses.
(b) 1/6th of the claim of depreciation on car.
(c) Rs. 7,500 out of AGM expenses.
III. The learned Commissioner (Appeals) has also erred in holding that set-off of unabsorbed depreciation and, investment allowance is to be allowed to the extent of total income available and is not to be restricted to the extent of the total income taxable under the provisions of section 115J of the Income Tax Act, 1961.
IV. The order of Commissioner (Appeals) to the extent indicated above is contrary to facts, law and the principle of natural justice."
3. First ground of appeal relates to the alleged error of the Commissioner (Appeals) in upholding the disallowance of depreciation amounting to Rs. 24,99,750 on computers purchased from M/s. Pertech Computers Ltd. (PCL) and leased out in the normal course of the business of the assessed. Part 2 of this ground is a supporting ground in which the assessed has grievance that on the facts, evidence and material on record, the Commissioner (Appeals) should have held that the computers in question had actually been purchased by the appellant-company and the ownership of the said computers was that of the appellant-company, and the appellant-company was fully entitled to claim depreciation on the same. Part 3 is also a supporting ground which says that the view taken and reasoning relied upon by the Commissioner (Appeals) in upholding the disallowance of the impugned depreciation are vitiated and bad in law. In part 4 it has been contended that the Commissioner (Appeals) omitted to decide the ground in regard to the quantum of the disallowance of depreciation of Rs. 24,99,750 against which the actual claim of the assessed was restricted to 75 per cent of Rs. 24,99,750 amounting to Rs. 18,74,812 in accordance with the provisions of section 34A of the Act.
4. The assessing officer has observed that the assessed during the year has purchased computers from M/s. Pertech Computers Ltd. for an amount of Rs. 75 lakhs. The assessed leased out the computers to M/s. Pertech Computers only. A search was carried out in the case of M/s. Pertech Computers Ltd. and the said company before the ADI (Inv.) made a conditional surrender with regard to lease rental received on account of computers which were sold and then subsequently taken on lease by M/s. Pertech Computers Ltd. This surrender was made on account of the fact that the transactions prima facie were not found to be free from doubt in the sense that the company which is manufacturing computers could not have taken computers on lease for such a large sum. Summons under section 131 was issued and M/s. Pertech Computers Ltd. was asked to explain its position with respect to the lease of the computers made by M/s. Hindustan Commercial Investment Corpn. after buying from PCL Ltd. A reply dated 9-2-1994, was filed by the assessed and the company made the following reply :
"During the search operations conducted on the company in January, 1993, the company made a conditional surrender with regard to lease rentals charged to P&L a/c. The surrender of lease rental was only on the condition if the department confirmed the following deductions which would normally flow if the transaction was to be treated as finance transaction
(a) The sale will be treated as reversed and consequently the profit reduced from the profit of the company.
(b) Depreciation will have to be allowed on the equipment covered under the arrangement by the company since consequent to the reversal of sale, the ownership of such assets will continue to vest with the company.
(c) Interest component in the lease rent Installment is allowed as an expense."
The assessed- company was therein asked to explain its position and the assessed- company vide its letter dated 25-2-1994, reiterated its position as under :
"(1) We reiterate that there are actual lease transactions with PCL and proper lease agreements have been duly executed. Copies of the same have already been filed.
(2) Assets in question have been duly purchased under sales invoices issue by PCL. Full consideration of the same was paid and constructive delivery of the assets took place. Copies of the purchase bills have already been filed. Thus, the transaction is a proper transaction under Sales of Goods Act and the ownership of the assets vests with the assessed- company.
(3) Assets in question have been leased out to PCL for which proper lease agreements were executed. As stated in their letter dated 18-2-1993, to ADI (Inv.), the assets are used by them for the purpose of demonstration as standby machine for service customers or by service department and for the in-house uses for software development facility, and test and repair center. The assets are physically available for inspection in various offices of PCL.
(4) The lease agreements were actually acted upon and PCL has been regularly paying the lease rent as agreed. Copies of the lease accounts have already been filed.
(5) The above facts have also been duly confirmed to Your Honour by PCL in its reply to the summons under section 131 of the Income Tax Act, 1961, issued to it by Your Honour in the present proceedings. Confirmations by it fully establish that there is proper transaction of lease and no adverse inference can be or should be drawn. The assessed- company has fully discharged its onus.
(6) From the let ter dated 18-2-1993, addressed by PCL to the ADI (Inv.), it is apparent that sales-tax proceedings in the case of PCL are pending and PCL has also made a statement that there was absolutely no evasion of sales-tax."
The assessing officer observed further that it is interesting to note here that PCL in its letter dated 9-2-1994, has not given actual delivery to the assessed. In fact, even the copies of the bills furnished by the assessed- company do not give any number of computers, there are no distinctive numbers to identify the computers and the bills have been raised with only general details of the system. It is not out of place to mention that even the assessed is not aware of the fact as to where these computers have been installed. There is no actual delivery and there is nothing on record to prove as to whether the computers were in fact at any time handed over to the assessed. It may be submitted here that confirmation by M/s. PCL has no relevance when the facts speak otherwise. These transactions were carried out in the last month of the year, i.e., February and March 1991, and this was done only with a view to claim depreciation and reducing tax incidence. Even a perusal of the bills raised by M/s. PCL shows that the bills have been raised in a general manner and there is no evidence to show whether the computers had at any point of time been had received by assessed or not.
After hearing the assessed's authorised representative, the assessing officer has observed in the result that this is only a financial arrangement made with a view to reduce the incidence of taxation. He has relied on the order of Tribunal, Delhi in ITA No. 8105/Del/1992 in the case of Goyal Gases (P) Ltd. v. Dy. CIT in which it has been held that the agreement of lease of the computers between the assessed and Altos does not inspire truthfulness for the obvious reason that manufacturer of computers would not take lease of the same in normal course of its business. The source of selling of computers by Altos to PCL and in turn by PCL to Altos under the colour of lease nothing beyond that the case have reached the place of origination therein great suspicion on the origination itself. In this case, the Tribunal has held that the transaction was not genuine and thus confirmed the order of the assessing officer following which the assessing officer has disallowed the claim of the assessed against which the assessed went in appeal before the Commissioner (Appeals) who has also confirmed the view of the assessing officer against which feeling aggrieved the assessed is in appeal before the Tribunal.
5. It has been held by the Commissioner (Appeals) that though the assessed has tried to distinguish the facts of the case from that of Goyal Gases (P) Ltd. (supra) but from the discussion it is clear that in the instant case the assessed has shown that it had purchased the computers from M/s. PCL c/o M/s. Altos Ltd. and even before the purchase materialised had leased out the same to the sellers/ manufacturer, i.e., M/s. PCL and this cannot be construed as to be in the normal course of business. Keeping in view the facts and also the findings, the entire transaction has been held to be sham and not genuine by the Commissioner (Appeals). Therefore, he has confirmed the order of the assessing officer.
6. We have heard Shri Rahul Khare, learned authorised representative for the assessed, and Shri R.R. Prasad, learned Departmental Representative for the revenue. The learned authorised representative for the assessed has argued that the main business of the assessed was of lease, finance and the transaction of the purchasing of computers from PCL and then subsequently leasing them to PCL was in the normal course of the business and was a genuine and bona fide transaction. He also referred to the purchase invoice-cum-challan and urged that as the full purchase price was duly paid by the assessed through account payee cheques as detailed on p-21 of the paper book and the payments had been acknowledged by M/s. PCL and there was constructive delivery of the computers supported by three lease agreements which were placed on paper book pp. 9 to 20, there was no justification for the assessing officer to doubt the transactions and disbelieve the delivery of the computers. Referring to the discussion by the assessing officer in respect of the letter written by M/s. PCL to ADI (Inv.), it was submitted that these letters in fact have confirmed that the computers had been sold by M/s. PCL and the computers have been taken on lease by M/s. PCL subsequently from the assessed-company. It had also confirmed that the computers leased out to it were being used as demonstration equipment, standby machines and for in-house use for software development. The learned authorised representative has pointed out that it was only in the alternative submissions that PCL had expressed to make conditional surrender but there was no basis for the assessing officer to have drawn any adverse inference from the conditional surrender as to effect the transactions with the assessed-company. Since the assessed-company was mainly engaged in carrying on business of lease, finance and the transactions were incurred in the normal course of business, the ratio in the case of Goyal Gases (P) Ltd. (supra) is not applicable to the facts of this case. Further, in the case of Goyal Gases (P) Ltd. (supra), independent enquiries had revealed that the computers did not exist and in fact there was an observation that the computers have not even been manufactured. Therefore, the Tribunal in that case had held that it was only a financial arrangement. In the instant case, the payments made by the assessed were duly confirmed and the lease agreement had been duly acted upon and, therefore, there was no justification for the assessing officer to disallow the claim. The learned authorised representative has also contended that the letters placed at pp. 25 to 28 of the paper book would show that PCL has duly confirmed that the computers had in fact been sold by it and that the computers have been leased out to it by the assessed-company. It has also been submitted that the Deputy Commissioner could not and should not have drawn any adverse inference from the conditional surrender, if any made by the PCL for two reasons, firstly, the surrender in any case was only a conditional surrender to which also they have raised certain objections and is, therefore, not final and, secondly, because such a surrender is relevant only in proceedings against PCL and not in proceedings in the present case. In the alternative, the learned authorised representative for the assessed contended that if the aforesaid submissions are not accepted, then appropriate directions be issued for excluding the lease charges included in the income for the year and in subsequent years as was also done by the Tribunal in the case of Goyal Gases (P) Ltd. (supra).
7. On the other hand, the learned Departmental Representative supported the orders of the revenue authorities.
8. After having heard both the parties and considering the order of the Tribunal as cited above, we hold that the legal effect of the present transaction is that there is a proper purchase of the assets by the assessed-company for which the constructive delivery was effected and full consideration was paid and there was proper lease agreement between the assessed-company and M/s. PCL and the same has been duly acted upon. All these were duly confirmed and supported by vouchers, payments by account payee cheques, use of computers by the lessee, confirmation of concerned parties, etc. The points of suspicion mentioned by assessing officer/Commissioner (Appeals) cannot override the evidence furnished and brought on record by the assessed. The decision has to be based on evidence on record which has not been rebutted and proved to be false or bogus.
9. In fact, the assessing officer himself finally in the impugned assessment order admitted the transaction between the parties but treated the same as financial transaction. There was no convincing reason or basis to change the nature of transaction from lease transaction to financial transaction on suspicion, conjecture and surmises. The lease rent had been included in the income.
10. The learned authorised representative for the assessed has relied on the judicial pronouncement of the Karnataka High Court in the case of Smt. C. Kamla v. CIT (1978) 114 ITR 159 (Kar), whereby it has been held that it is the duty of the court while administering any tax law to give importance both to the form and substance of a transaction. It is quite possible that when a transaction is entered into in one form, known to law, the amount received under that transaction may attract liability under the Act and if it is entered into another form, which is equally lawful, it may not attract such liability. But when the assessed had adopted the latter one it would not be open to the court to hold him liable for tax on the ground that in substance the transaction is one which resulted in gain subject to tax. In matters of this kind the court cannot ignore the form altogether as also the legal effect of the proceedings in court. Hence, we delete the disallowance made by the assessing officer and confirmed by the Commissioner (Appeals). Thus, we dispose of ground Nos. I(l), (2), (3) and (4).
11. Ground No. II relates to the alleged error of the Commissioner (Appeals) in upholding the disallowances Rs. 11,827 out of car expenses; 1/6th of the claim of depreciation on car and Rs. 7,500 out of AGM expenses. The assessing officer has disallowed 1/5th out of the car expenses and depreciation, following the past history of the case against which the assessed went in appeal before the Commissioner (Appeals) who has reduced the disallowance out of car expenses and depreciation to 1/6th. The assessed still aggrieved, is in appeal before the Tribunal. Since it is a case of company, there is no chance of using the car for personal purposes. Hence, no disallowance should be made.
12. Assessing officer has disallowed the AGM expenses by observing that since shareholders are the owners of, the company, any expenditure by the owner for his refreshment would not amount to expenditure incurred for business purposes. Therefore, the assessing officer disallowed the expenditure as an entertainment expenditure covered under section 37(2A) read with Explanation 2 of the Act. In appeal, the Commissioner (Appeals) has reduced the disallowance to Rs. 7,500 against which the assessed is in appeal before the Tribunal. Since, the Commissioner (Appeals) has already given relief to the assessed in view of Explanation 2 to section 37(2A), we do not find any justification to interfere with the order of the Commissioner (Appeals), which, we confirm on this issue.
13. Ground No. III relates to the alleged error of the Commissioner (Appeals) in holding that set-off of unabsorbed depreciation and investment allowance is to be allowed to the extent of total income available and is not to be restricted to the extent of the total income taxable under the provisions of section 115J of the Act. The assessing officer has disallowed the investment allowance as the same was not allowed to the assessed in the earlier years against which the assessed went in appeal before the Commissioner (Appeals) who rejected the ground of the assessed following the order of the Tribunal in the case of Dy. CIT v. Karnataka State Small Industries Development Corpn. (1994) 50 TTJ (Bang) 158, against which the assessed is in appeal before the Tribunal.
14. The learned authorised representative for the assessed contended that this issue is covered by the order of the Tribunal, dated 12-2-1992 (p. 53 of the paper book filed by the assessed), in which investment allowance allowed to the assessed by the Commissioner (Appeals) following the Tribunal's order in ITA No. 485/Del/1986 in the case of Motor & General Finance Ltd. for the assessment year 1982-83, has been confirmed. The learned authorised representative for the assessed has also placed reliance on the order of the Tribunal in ITA No. 7378/Del/1992 in the case of Motor General Finance Co. We, respectfully following the above-cited orders of the Tribunal, allow this ground of the assessed.
15. Ground No. IV is general. It does not require adjudication.
16. In the result, the appeal is partly allowed.