Income Tax Appellate Tribunal - Chennai
Baghmar Finance Ltd., Chennai vs Department Of Income Tax on 20 August, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH, CHENNAI
BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
AND SHRI V. DURGA RAO, JUDICIAL MEMBER
I.T.A. Nos. 1244 & 1257/Mds/2013
(Assessment Years : 2008-09 & 2009-10)
The Assistant Commissioner M/s Baghmar Finance Ltd.,
of Income Tax, New No.4, Old No.49, Laxmi Nivas,
Company Circle I(2), v. Erulappan Street, Sowcarpet,
Chennai - 600 034. Chennai - 600 079.
PAN : AAACB 3597 Q
(Appellant) (Respondent)
Appellant by : Sh. Guru Bashyam, JCIT
Respondent by : None
Date of Hearing : 20.08.2013
Date of Pronouncement : 23.08.2013
O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :
In these appeals of the Revenue, common grievance raised is that CIT(Appeals) deleted disallowance of depreciation on windmill, windmill building and windmill road. As per the Revenue, the Tribunal orders in assessee's own case for assessment years 2006-07 and 2007-08, which were relied on by the CIT(Appeals), have not been 2 I.T.A. Nos. 1244 & 1257/Mds/13 accepted by the Department and appeals were pending before Hon'ble jurisdictional High Court.
2. Assessee had claimed depreciation on windmill, windmill building and windmill road for the impugned assessment years. In the preceding assessment year 2006-07, similar claim on same windmill, windmill building and windmill road were disallowed by the Assessing Officer for a reason that the asset was not in assessee's name. However, in the said year, on assessee's appeal, CIT(Appeals) allowed the claim of the assessee. On further appeal filed by the Revenue, this Tribunal held at para 5 of its order, as under:-
"5. We have considered the rival submissions. At the outset, a perusal of the assessment order for the assessment year under appeal being 2006-07 as also the assessment year 2007-08, in the column: nature of business, it is noticed that the Assessing Officer has mentioned that the assessee is also having the business of operating windmill. A perusal of the assessment order for the assessment year 2006-07 shows that the Assessing Officer has disallowed the claim of the depreciation by treating the transaction between the assessee and M/s. Surana Industries Ltd. As a sham transaction and at best it could only be a finance transaction. If for a moment, we are to assume that there is no purchase of windmill of 80% share of the windmill by the assessee and it is assumed that ₹ 8.10 crores was a finance arrangement between the assessee and M/s. Surana Industries Ltd. Is a finance transaction, it is well known that the finance charges normally run between the rate of 18% to 24%. This itself 3 I.T.A. Nos. 1244 & 1257/Mds/13 would mean interest burden on M/s. Surana Industries Ltd. At a minimum of ₹1.20 crores per annum. Even assuming that the rate of interest would be 10% the finance burden would be ₹80.00 lakhs minimum. The repayment of principle is additional. However, a perusal of the income generated by the assessee from the operation of the windmill shows that the income of the assessee is varying between ₹43.00 lakhs to ₹60.00 lakhs between the assessment years 2007-08 and 2010-11. Obviously, no businessman doing the fiancé would lend money to earn such a low interest even assuming that the assessee is liable to get the benefit of deprecation at 100%, which would result in the reduction of the income of the assessee in the present case over a period of 2 years by ₹8.10 crores. It would be of no benefit to the assessee in so far as when the windmill is sold at any point of time the windmill will be depreciated asset and the income would be taxable as a short term capital gain due to applicability of section 50 of the Income Tax Act. Further, the existence of the windmill is not in dispute by the Revenue. The payment by M/s. Surana Industries Ltd. to the assessee in regard to the quantum and the method of computation of quantum is also not in dispute. As per the sale agreement, the assessee is entitled to 80% of the net income as generated. The sale agreement does not fix the consideration payable to the assessee. In the ground of appeal, the Revenue has also raised a ground alleging that there has been search conducted by the CB-CID in the case of one M/s. Vinayaka Vyapar ltd., who had sold that windmill to M/s. Surana Industries Ltd. in respect of which the Assessing Officer in the letter to the CIT-DR has mentioned that there is some letter from the Superintendent of Police, CB-CID, North Zone, Chennai, who has sought assessment particulars of M/s. Vinayak Vyapar Ltd. in respect of the sale of eight windmill to M/s. Surana Industries Ltd. How, this would effect the case of the assessee is not explained. As far as the assessee is concerned, the assessee has paid M/s. Surana Industries Ltd. ₹8.10 crores for 80% share in one windmill, which has also ben identified by the Assessing Officer in his assessment order as windmill bearing No. WEG HT.SC.No.1588 located at SF No. & Village 425/4, 5A(P), 5B(P) of Radhapuram village, Tirunelveli District. In these circumstances, the windmill and location of the windmill 4 I.T.A. Nos. 1244 & 1257/Mds/13 also stands identified. As per the letter of the Assessing Officer to the ld. CIT-DR, it is mentioned that there is every reason to doubt that the transaction with M/s. Vinayaka Vyapar Ltd. by M/s. Surana Industries Ltd. is not genuine. Here also it is noticed that it is a doubt and a doubt cannot be a foundation for assessment. In fact, M/s. Surana Industries Ltd. has specifically reported to the Assessing Officer that there has been no search on the premises of M/s. Surana Industries Ltd. by the CB-CID. M/s. Surana Industries Ltd. as on 15.10.09 has also written to the assessee again confirming that it has sold 80% share in one of the windmill and the assessee has taken finance for purchasing 80% share and the income pertaining to the windmill co-owned by the assessee of M/s. Surana Industries Ltd. has been paid to the assessee and M/s. Surana Industries Ltd. has not claimed depreciation on the 80% share of the windmill sold to the assessee. A perusal of the decision of the Hon'ble Supreme Court in the case of Podar Cements Ltd (supra) also shows that as per the said decision, the term 'owner' for the purpose of Income Tax Act is a person who receives or is entitled to receive the income from the property in his own right. Here as per agreement with M/s. Surana Industries Ltd. and as also confirmed by M/s. Surana Industries Ltd. the assessee is the owner of 80% share in one windmill and the assessee has received income from his 80% share of the windmill and the income has also been offered to tax The Income received by the assessee is quantified on the basis of the sale agreement as also the MOU entered into by the assessee with M/s. Surana Industries Ltd. Further, the Revenue has not been able to show that the income received by the assessee from its share of 80% in the windmill is not on the basis of the agreement and the MOU entered into by the assessee with M/s. Surana Industries Ltd. Just by making a blunt statement that the transaction is sham and could be considered as a financial arrangement without any calculation or reasoning or corroborative evidence to show that the same is a finance arrangement or without any evidence rebut the claim of the assessee that it is the owner of the 80% share in the windmill, the claim of the assessee that it is the owner of the 80% share owner in the windmill cannot be rejected. Under these circumstances, it cannot be said that the assessee is not 5 I.T.A. Nos. 1244 & 1257/Mds/13 the owner of the windmill. Accordingly, we are of the view that the finding of the ld. CIT(A) that the assessee is the owner of the windmill is entitled to depreciation is found to be on right footing and the same is upheld."
3. We find from the assessment orders that depreciation claimed by the assessee for the impugned assessment years were also on the very same assets. Therefore, CIT(Appeals) was justified in allowing the claim of the assessee following earlier year orders of this Tribunal. We find no reason to interfere with the order of CIT(Appeals).
4. In the result, appeals filed by the Revenue are dismissed. Order was pronounced in the Court on Friday, the 23rd of August, 2013, at Chennai.
sd/- sd/-
(V.Durga Rao) (Abraham P. George)
Judicial Member Accountant Member
Chennai,
Dated the 23rd August, 2013.
Kri.
Copy to: (1) Appellant
(2) Respondent
(3) CIT(A)-VI, Chennai
(4) CIT-I, Chennai
(5) D.R.
(6) Guard file