Dow Chemical International P. Ltd, ... vs Assessee
- CitationI.T.A. No.7460/Mum/2010
Ratio decidendi
The rule this decision rests on
Where a lease agreement's characterisation as financial or operating lease is disputed, the tax authorities must examine the lease agreement itself to determine its actual nature before deciding whether lease rentals are deductible as revenue expenditure or whether the principal portion is disallowable; an assessment that fails to do so cannot stand and the issue is restored for fresh examination in light of the agreement and related material. Employees' contribution to the Provident Fund paid before the end of the relevant previous year is not disallowable merely because it was paid after the due date prescribed under the Provident Fund Act, the tribunal following the jurisdictional High Court's decisions in Ghatge Patil Transport Ltd and Hindustan Organics Chemicals Ltd on that point. An assessee may raise an additional claim for deduction during assessment or appellate proceedings without filing a revised return, the tribunal following the jurisdictional High Court's decision in Pruthvi Brokers and Shareholders (P) Ltd that the appellate authority is entitled to consider such a claim; the claim is to be admitted and examined on the merits, with the matter restored to the Assessing Officer for that purpose after affording the assessee an opportunity of being heard.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, (JM) सव ी बी.आर.बा करन, लेखा सद य एवं ी संजय गग , या यक सद य के सम
आयकर अपील सं./I.T.A. No.7460/Mum/2010 ( नधा रण वष / Assessment Year : 2006-07)
Dow Chemical International बनाम/ Additional Commissioner of Private Limited, Vs. Income Tax, Range-10(2), Unit No.1, Corporate Park, Aayakar Bhavan, V N Purav Marg, M K Road, Chembur, Mumbai-400020 Mumbai-400071 (अपीलाथ /Appellant) .. ( !यथ / Respondent)
थायी ले ख ा सं . /जीआइआर सं . /PAN/GIR No. :AAACD4467B
अपीलाथ ओर से / Appellant by Shri M P Lohia !यथ क$ ओर से/ Respondent by Shri Love Kumar
सन ु वाई क$ तार(ख / Date of Hearing : 10.3.2015 घोषणा क$ तार(ख /Date of Pronouncement :10.3.2015
आदे श / O R D E R
Per B.R.BASKARAN, Accountant Member:
The appeal by the assessee is directed against the assessment order
passed u/s 143(3) read with section 144C(13) of the Income Tax Act, 1961
(the Act).
2. The assessee has raised six grounds. The grounds No.4 and 5
relating to charging of interest are consequential in nature and hence they
do not require any adjudication. Ground No.6 relating to initiation of 2 ITA. No.7460/Mum/2010
penalty proceedings under section 271(1)(c) of the Act is premature at
this stage. The remaining three grounds relate to the following three
issues:
a) disallowance of lease payment; b) disallowance of employees contribution to Provident Fund; and c) rejection of claim for deduction of expenditure relating to reimbursement of deputed staff cost.
3. We heard the parties and perused the record. The first issue relates
to disallowance of lease payment made to M/s IBM for taking computer on
lease, treating the same as capital expenditure. The assessee had taken
computers on lease from M/s IBM. In the books of account, the assessee
treated the same as "financial lease" and accordingly it claimed only
interest portion as expenditure in the profit and loss account. However, in
the income tax computation, the assessee treated it as "operating lease"
and accordingly claimed entire lease rental (Principal + interest portion) as
revenue expenditure. However, the AO treated the lease as financial lease
and accordingly, disallowed the claim for deduction of principal portion.
The DRP also confirmed the same.
4. At the time of hearing, the Ld A.R placed strong reliance on the
lease agreement and submitted that the terms of the lease agreement
clearly show that the same was an "Operating lease" only. However, we
notice from the orders of tax authorities that they have not examined the
lease agreement in order to find out the actual nature of the lease i.e.
whether it was a financial lease or an operating lease. The ld. counsel 3 ITA. No.7460/Mum/2010
submitted that the DRP has confirmed the order of the AO on the ground
that the assessee was not able to explain as to what would be the
treatment to the computer after the expiry of lease period. The ld.
Counsel submitted that the lease agreement specifically provides that the
computer would be returned back to M/s IBM. He further submitted that
the assessee has also obtained a certificate to that effect from M/s IBM.
Thus, in our view, the present dispute could be resolved only if a definite
finding about the nature of lease is given. We have already noticed that
both the authorities have failed to examine the lease agreement which, in
our view, is essential. Accordingly, we are of the view that this issue
requires fresh examination at the end of the AO. Accordingly, we set aside
the order of the AO and restore this issue to the file of the AO/DRP with a
direction to decide the same afresh by duly considering the lease
agreement, certificate given by the M/s IBM and any other
information/explanations that may be furnished by the assessee.
5. The next issue relates to disallowance of employees' contribution to
Provident Fund. We notice that the AO has disallowed the claim on the
reasoning that the assessee failed to pay employees' contribution before
the due date prescribed under the Provident Fund Act.
6. The ld. counsel submitted that the assessee has paid the amount
before the end of the relevant financial year and hence the AO was not
justified in disallowing the claim in view of the decisions rendered by the 4 ITA. No.7460/Mum/2010
Jurisdictional High Court in the case of CIT V/s Ghatge Patil Transport Ltd,
dated 14 October, 2014 in Income Tax Appeal Nos.1002 OF 2012 and
1034 of 2012 and CIT V/s Hindustan Organics Chemicals Ltd reported in
(2014) 366 ITR 1 (Bom). Thus, we notice that the impugned issue is
covered in favour of the assessee by the aforesaid decisions of the Hon'ble
jurisdictional High Court. Accordingly, we set aside the order of the ld.
CIT(A) on this issue and direct the AO to delete this addition.
7. The next issue relates to claim for deduction of expenditure incurred
towards reimbursement of deputed staff cost. The assessee did not claim
the same in the original return as deduction. However, during the course
of assessment proceedings, the assessee filed revised computation of
income by claiming the above said deduction. The AO rejected the claim
on the ground that the assessee could have made the claim only by filing
revised return of income. The DRP also confirmed the same.
8. Before us, the ld. Counsel submitted that the AO has rejected the
claim by following the decision of Hon'ble Supreme Court in the case of
Goetze (India) Ltd V/s CIT (2006) 284 ITR 323 (SC), wherein it was held
that the assessee should make any additional claim by filing revised return
of income. However, the Jurisdictional High Court has held in the case of
CIT V/s Pruthvi Brokers and Shareholders (P) Ltd (2012) 349 ITR
336(Bom) that appellate authority is entitled to consider the additional
claim, if any and adjudicate the same. Accordingly, we are of the view 5 ITA. No.7460/Mum/2010
that the claim for deduction put forth by the assessee should be admitted.
Further, since the same needs to be examined, we think it fit and proper
to restore this issue to the file of the AO with a direction to examine the
claim put forth for deduction by the assessee and take appropriate
decision in accordance with law.
9. Needless to mention that the assessee should be given necessary opportunity of being heard.
10. In the result the appeal filed by the assessee is treated as allowed
for statistical purposes.
The above order was pronounced in the open court on 10th Mar, 2015.
घोषणा खुले यायालय म, -दनांकः10th March, 2015 को क$ गई ।
sd sd
(संजय गग /SANJAY GARG) ( बी.आर.बा करन / B.R. BASKARAN) या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER मुंबई Mumbai:10th March,2015. व. न.स./ SRL , Sr. PS
आदे श क !त#ल$प अ%े$षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. !यथ / The Respondent.
3. आयकर आयुक्त(अपील) / The CIT(A)- concerned
4. आयकर आयु6त / CIT concerned
5. 7वभागीय त न9ध, आयकर अपील(य अ9धकरण, मुंबई / DR, ITAT, Mumbai concerned
6. गाड फाईल / Guard file.
आदे शानुसार/ BY ORDER, true copy सहायक पंजीकार (Asstt. Registrar) आयकर अपील(य अ9धकरण, मंब ु ई /ITAT, Mumbai
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