Hdfc Bank Ltd, Mumbai vs Assessee

सव ौी नरे ि कुमार ब लै या, लेखा सदःय एवं अिमत शु'ला, याियक सदःय के सम(

BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER &

SHRI AMIT SHUKLA, JUDICIAL MEMBER

आयकर अपील सं./I.T.A. No. 1544/Mum/2000 िनधा रण वष / Assessment Year : 1996-97 (िनधा आयकर अपील सं./I.T.A. No. 2797/Mum/2000 िनधा रण वष / Assessment Year : 1997-98 (िनधा आयकर अपील सं./I.T.A. No. 341/Mum/2003 िनधा रण वष / Assessment Year : 1998-99 (िनधा HDFC BANK LTD. बनाम The JCIT, Range - 15, बनाम/ Sandoz House, Aaykar Bhavan, Vs. Dr.Annie Basent Road, Room No.517, Worli, Mumbai 400 018. Mumbai 400 020

ःथायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAACH 2702H (अपीलाथ- /Appellant) .. (ू/यथ- / Respondent) आयकर अपील सं./I.T.A. No. 1700/Mum/2000 िनधा रण वष / Assessment Year : 1996-97 (िनधा आयकर अपील सं./I.T.A. No. 2790/Mum/2000 िनधा रण वष / Assessment Year : 1997-98 (िनधा आयकर अपील सं./I.T.A. No. 664/Mum/2003 िनधा रण वष / Assessment Year : 1998-99 (िनधा The JCIT, Range - 15, बनाम HDFC BANK LTD. बनाम/ Aaykar Bhavan, Sandoz House, Vs. Room No.517, Dr.Annie Basent Road, Mumbai 400 020 Worli, Mumbai 400 018.

ःथायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAACH 2702H (अपीलाथ- /Appellant) .. (ू/यथ- / Respondent) 2 I. T . A . N o . 1 5 4 4 / M u m / 2 0 0 0 & O t h e r s HDFC Bank Ltd.

Assessee by: Shri Jehangir D. Mistry Revenue by: Shri Kishan Vyas

सुनवाई क0 तार1ख / Date of Hearing :11.02.2015 घोषणा क0 तार1ख /Date of Pronouncement : 18 .02.2015

आदे श / O R D E R

PER N.K. BILLAIYA, AM:

ITA NO.1544/M/2000 and 1744/M/200 are cross appeals by the assessee and the Revenue for assessment year 1996-97. ITA No.2797/M/2000 and ITA No.2790/M/2000 are cross appeals for A.Y 1997-98 and ITA No.341/M/2003 & ITA No.664/M/2003 are cross appeals for A.Y 1998-99. These bunch of appeals were heard together as they have common grounds and are disposed of by this common order for the sake of convenience.

ITA NO.1544/M/2000-A.Y. 1996-97, ASSESSEE'S APPEAL:

2. First ground relates to the disallowance of guest house expenses under section 37(4) of the Income Tax Act, 1961 (the Act). At the outset, the Ld. Counsel for the assessee fairly conceded that this issue has been decided against the assessee by the Hon'ble Supreme Court in the case of Britannia Industries Ltd., 278 ITR 546(SC). Considering the issue in light of the decision of the Hon'ble Supreme Court, Ground No.1 is dismissed.

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3. Ground No.2 relates to disallowance of depreciation on assets leased to REPL. This issue has been discussed at length by the AO at para-7 of his order and at para 7.4 the AO observed that the Investigation Directorate of the Department had carried out the search under section 132 of the Act, in the case of REPL Engineering Ltd., and other companies belonging to this group. To investigate into large scale bogus leasing transaction of Wind Mills entered into by the REPL with various companies. During the course of search / investigation a reference was made to GEDA to confirm the contents of the Commissioning Certificate issued by it and produced before the Income Tax Authorities for claiming of depreciation. GEDA confirmed that HDFC Bank Ltd. have neither installed any Wind Mills in the state of Gujarat nor any Commissioning Certificate were issued to HDFC Bank Ltd.. The Investigation Directorate carried out a detailed investigation into the genuineness of large scale leasing of Wind Mills with REPL Engineering Ltd. with various companies. The company was found to have entered into bogus leasing transaction with various companies which include HDFC Bank Ltd. As a sequel of the search operation, conducted by Investigation Directorate in the case of REPL group establishing non-existence of assets and bogus lease transactions entered by the group, the AO disallowed the claim of depreciation on assets leased to REPL.

3.1 Aggrieved, the assessee carried the matter before Ld. CIT(A). It was strongly contended before Ld. CIT(A) that the proper course of action should be under section 158BD of the Act and, therefore, the additions/disallowance made by the AO is bad in law. 3.2 Ld. CIT(A) did not accept this contention of the assessee. Aggrieved, before us the Ld. Counsel for the assessee reiterated that the 4 I. T . A . N o . 1 5 4 4 / M u m / 2 0 0 0 & O t h e r s HDFC Bank Ltd.

additions, if at all can be made only under section 158BD of the Act. In support strong reliance was placed on the decisions of the Tribunal Delhi Bench in the case of Kapil Dev in ITA No.2259/Del/2002.

3.3 Per contra, Ld. DR strongly submitted that the facts of the case in hand are totally different from the facts of the case relied upon by the counsel.

3.4 We have carefully gone through the orders of the authorities below. We have also considered the decision of the Tribunal Delhi Bench in the case of Kapil Dev (Supra). The relevant portion of the decision of the Tribunal Delhi Bench read as under:

"11.1 The main question which thus arises before us is if it all the seized material represented undisclosed income of the assessee, whether the procedure prescribed by sec. 158BD was to be mandatorily followed and having failed to do so, whether the material could be used by AO in regular assessment u/s 143(3), by going beyond i) Chapter XIV-B; and ii) findings given by DCIT(Inv.), Mumbai..

11.2. The legislature w.e.f. 1-7-1995 enacted a special procedure for assessment of undisclosed income on the basis of seized material found during the course of search. Procedure was devised firstly to impose a tax of 60% as against the regular rate of tax and secondly to enable the AO to make block assessment in respect of 6 years in substitution of the regular assessment proceedings. Chapter XIV-B is named as "Special Procedure for assessment of undisclosed income as a result of search". Section 158BA(1) is preceded by non-obstinate clause "notwithstanding anything contained in any provisions of this Act". A plain reading of these provisions reveals that in case the AO having jurisdiction on the searched person finds that some seized material indicates undisclosed income of any other person, in that case he should forward a reference u/s 158BD after recording a proper satisfaction and before completion of block assessment. Thereafter 5 I. T . A . N o . 1 5 4 4 / M u m / 2 0 0 0 & O t h e r s HDFC Bank Ltd.

the other person's AO is required to proceed according to sec. 158BD read with sec. 158BC. With this over-riding provision on the statute, in our considered view, the addition, if at all could have been considered in the hands of assessee u/s 158BD and not regular assessment u/s 143(3). The procedure prescribed is mandatory, besides it is explicit from the block assessment order of RC that his AO, did not carry a satisfaction that the diary in any way represented undisclosed income of the assessee. It has been observed in RC's block assessment that Kapil Dev has denied the cash entries in diary and therefore after considering the evidence, facts and circumstances, the addition was made in the hands of RC. Thus, three important factors emerge from the block assessment order of RC:

(i) Assessec's explanation was considered during block assessment proceedings and it was held that the seized material represented undisclosed income of RC and not the assessee.

(ii) No indication is given that the cash entries in diary may also amount to Kapil Dev's income.

(iii) No satisfaction u/s 158BDwas communicated to the assessee's AO.

11.3. In view of these observations, we are inclined to hold that if the department proposed to make an assessment based on searched material, then the course available to it was to proceed as per the provisions of Chapter XIV-B i.e. sec. 158BD read with sec. 158BC of the Act and not u/s 143(3).

11.4. Hon'ble Delhi High Court in the case of R.K. Jam (supra) has observed that in case of search material, the same is to be assessed by way of block assessment under Chapter XIV-B. Similar view is echoed by Hon'ble Bombay High Court in the case of Dr. M.K. E. Menon and by Hon'ble Gujarat High Court in N.R. Paper & Board Ltd. & others (supra). A similar view has been upheld by Hon'ble Supreme Court in the case of Manish Maheshwari (supra). In view of above, we are of the view that the impugned addition of Rs.83 lacs cannot be made in the hands of the assessee on protective basis by taking recourse to sec. 143(3). Thus, the additional ground of the assessee is allowed.

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11.5. The appeal is very old, filed way back in 2002. Therefore, we would like to decide the merits of the addition. It emerges from record that:

(i) Assessee's stand was examined in the course of block assessment of RC, there also he denied having any connection with the diaries cash entries made in the handwriting of RC.

(ii) During the course of search in RC's premises and in subsequent search of the assessee's premises, no corroborative incriminating evidence was found to suggest such cash payments or assets of said firm M/s Dev Yogi Developers.

(iii) Lower authorities have solely relied on various uncorroborated evidence including the fact that in the diary two cheuqe entries match with assessee's record in respect of his capital contribution in the firm M/s Dcv Yogi Developers, therefore, it is to be inferred that all the cash entries mentioned in RC's seized diary belonged to the assessee. Had the paper been in the handwriting of assessee, this presumption could have some relevance, but with stark reality of the diary being written in the hand of 'RC' and found in his premises during the course of search; in our view, such inferences are shaky and have no legs to stand except creating a suspicion.

(iv) The statutory presumption u/s 132(4A) has been raised against RC and addition confirmed in his hands by block assessment u/s 158BD.

(v) The assessee had withdrawn from the firm M/s Dev Yogi Developers in April 1997 and RC was search on 4/5 Sept.

1997. Assessee on all forums contended that he was not comfortable with the partnership, which is corroborated by the fact that cheques issued by RC bounced. On measures of preponderance of probabilities also the statement of RC which is not even believed by his AO, cannot implicate the assessee without there being a corroborative evidence. There cannot be a protective assessment on the basis of above assumptions and facts with a bald direction that if the addition is not made in the hands of RC, the same should be added in the hands of the assessee.

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(vi) On framing of protective assessment u/s 143(3) also the argument of ld. counsel merits credence. The special provisions of the Act prescribe an assessment based on searched material itself and vests power in AO to initiate proceedings u/s 158BD read with sec. 158BC in the hands of other persons. Thus, the AO has to record satisfaction either to the effect that the seized material belonged to the searched person or the other person.

11.6. In the light of foregoings, we delete the addition of Rs.83 lacs on merit also."

3.5 The only distinguishing fact if at all is that in the case of Kapil Dev (supra) a diary was found by the search party and in the case in hand on physical investigation made during the search of REPL bogus transaction came to the notice of the Department. In our considered opinion, these facts cannot be said to be distinguishable in the light of the provisions of section 158 BD. Therefore, respectfully following the decision of the Co-ordinate Bench we set aside the order of Ld. CIT(A) and direct the AO to delete the addition on account of depreciation. Ground No.2 is allowed.

4. Ground No.3 relates to the claim of depreciation on assets given on lease to REPL. Since we had decided this issue in favour of the assessee and against the Revenue qua ground No.2, this ground by the assessee become infructuous.

5. Ground No.4 relates to the disallowance of depreciation on leased assets to AEL. The AO has considered this issue at para-17 of page 52 of the assessment order. While scrutinizing the return of income the AO noticed that the assessee has entered into a lease agreement under which assets were leased for a total consideration of Rs.2,04,36,150/-. The AO 8 I. T . A . N o . 1 5 4 4 / M u m / 2 0 0 0 & O t h e r s HDFC Bank Ltd.

further observed that the leased assets were purchased by the assessee from lessee itself namely, Asian Electonics Ltd. The AO observed that on the basis of the lease agreement, the assessee is making claim of ownership and use of assets for its business purpose to advance its claim of depreciation. The AO verified the transaction from AEL which confirm the transaction. The AO observed that the Capacitors were sold to HDFC Bank Ltd. by AEL and were immediately taken back on lease and then the same Capacitors were subsequently sub-leased to MSEB. After considering the aforestated facts, the AO finally concluded that the claim of ownership by the assessee is nebulous, meaningless and purely academic in nature and proceeded by disallowing the claim of depreciation of leased assets to AEL.

5.1 Aggrieved, the assessee carried the matter before Ld. CIT(A). Ld. CIT(A) dismissed the ground of appeal holding that the assessee has claimed depreciation which is violation of the circular of Reserve Bank of India. Aggrieved by this the assessee is before us.

5.2 Ld. Counsel for the assessee strongly relied upon the decision of the Hon'ble Supreme Court in the case of I.C.D.S Ltd. vs. CIT, 350 ITR 527 (SC). The Ld. Counsel for the assessee further pointed out that the decision of Hon'ble Supreme Court has been consistently followed by the Tribunal Mumbai Bench in the case of Development Credit Bank in ITA No.3006/M/2001 and 4892/M/2003, Larsen & Toubro Ltd. in ITA No.2200/M/2000, SISCOM Ltd. in ITA No.7901/M/2003, ICICI Bank Ltd. in ITA No.3827/M/2005.

5.3 Ld. DR could not bring any distinguishing decision in favour of Revenue.

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5.4 Considering the facts of the case in the light of the decision of the Hon'ble Supreme Court in the case of ICDS Ltd.(supra), which has been followed by the Benches of the Tribunal Mumbai in the cases cited herein above, we set aside the findings of the Ld. CIT(A) and direct the AO to allow the claim of depreciation on leased assets to AEL. Ground No.4 is allowed.

5.5 Since we have allowed Ground No. 2 & 4, the grievance raised vide Ground No.5 become otiose.

5.6 The additional ground raised by the assessee relates to disallowance of cost of assets leased to REPL as trading loss. Since we have allowed Ground No.2 of the present appeal, additional ground raised by the assessee becomes infructuous.

ITA NO.1700/M/2000-A.Y.1996-97, REVENUE'S APPEAL:

6. The sole ground in the Revenue's appeal relates to the deletion of the addition on account of broken period interest. This issue has been decided by the Hon'ble Jurisdictional High Court in assessee's own case in Income Tax Appeal No.330 of 2012.

6.1 We have carefully perused the order of the Hon'ble Jurisdictional High Court (supra). We find that Question "B" before the Hon'ble Court was:

"Whether the ITAT was correct in law in holding that the broken period interest is allowable as the deduction, inspite of the Hon'ble Supreme Court decision in the case of CIT vs. Vijaya Bank, 187 ITR 541 and Rajasthan High Court decision in the case of Bank of Rajasthan, 316 ITR 391. ?"

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The Hon'ble Court held as under:

"6. Even as far as question (B) is concerned, we find no infirmity in the orders passed by the CIT (Appeals) or the ITAT. In deciding this issue, CIT (Appeals) and the ITAT have merely followed the judgment of this Court in the case of American Express International Banking Corporation v/s. Commissioner of Income Tax, reported in (2002) 258 ITR 601. On going through the judgment, we find that question (B) reproduced above and projected as substantial by Mr. Suresh Kumar is squarely answered by the judgment of this Court in the case of American Express International Banking Corporation (supra). In view thereof, we do not find that even question (B) gives rise to any substantial question of law that needs to be answered by this Court."

6.2 As no distinguishing fact/decision has been brought on record by Ld. DR, respectfully following the ratio laid down by the Hon'ble Jurisdictional High Court (supra), this ground of the appeal is dismissed.

6.3 In the result, the appeal filed by the Revenue is dismissed.

ITA NO.2797/MUM/2000-A.Y. 1997-98-ASSESSEE'S APPEAL:

7. Ground No.1 relates to the disallowance of guest house expenses . An identical issues has been decided by us against the assessee and in favour of Revenue in ITA No.1544/M/2000 vide ground No.1. Respectfully following our own decision, Ground No.1 is dismissed.

7.1 Ground No.2 relates to disallowance of depreciation on assets leased to REPL. Similar issue has been decided qua Ground No.2 in ITA No.1544/M/2000. For similar reasons Ground No.2 is allowed.

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7.2 Ground No.3 relates to the disallowance of depreciation on leased assets to REPL Engineering Ltd. Similar issue was considered by us in ITA No.1544/Mum/2000, wherein we have held that this grievance of the assessee becomes otiose, qua our decision on Ground No.2.

7.3 Ground No.4 relates to the disallowance of depreciation on leased assets to AEL. Identical issue was decided in ITA No.1544/M/2000, wherein we have followed the decision of Hon'ble Supreme Court in the case of ICDS Ltd., 350 ITR 527(SC). For similar reasons on similar set of facts Ground No.4 is allowed.

8. The additional ground raised by the assessee become otiose due to our finding given for Ground No.2 of this appeal.

9. In the result, the appeal filed by the assessee is partly allowed.

ITA NO.2790/MUM/2000-A.Y. 97-98, REVENUE'S APPEAL:

10. The first ground relates to the deletion of the addition on account of broken period interest. An identical issue has been decided by us in ITA No.1700/M/2000, wherein we have followed the decision of Hon'ble Jurisdictional High Court in assessee's own case. For similar reasons this ground is dismissed.

11. Ground No.2 relates to the disallowance of interest attributable to earn tax free income.

11.1 Ld. Counsel for the assessee brought to our notice the decision of the Tribunal in assessee's own case for A.Y. 2001-02 to A.Y 2005-06 in 12 I. T . A . N o . 1 5 4 4 / M u m / 2 0 0 0 & O t h e r s HDFC Bank Ltd.

ITA No.330. 354, 328, 329, 335/M/2012. It is the say of the Ld. Counsel that in all these years the Tribunal has decided this issue in favour of the assessee and against the Revenue.

11.2 Considering the fact that in earlier years the Tribunal has decided this issue in favour of the assessee and against the Revenue, we do not find any reason why same should not be allowed for the year under consideration. In the light of the decision of the Tribunal in assessee own case in earlier years we confirm the finding of Ld. CIT(A) and dismiss Ground No.2 of Revenue's appeal.

12. In the result, the appeal filed by the Revenue is dismissed.

ITA NO.341/MUM/2003-A.Y. 1998-99- ASSESSEE'S APPEAL:

13. The sole disallowance is in respect of depreciation on leased assets to REPL. This issue has been considered by us in ITA No.1544/Mum/2000 vide Ground No.2 of that appeal. Respectfully following our own decision for A.Y 1996-97, we direct the AO to delete the disallowance of depreciation of leased assets to REPL. Ground No.1 is accordingly allowed.

14. In the result, the appeal filed by the assessee is allowed.

ITA NO.664/MUM/2003- A.Y. 1998-99-REVENUE'S APPEAL:

15. The first grievance of the Revenue relates to the deletion of the addition of broken period interest. This issue has been decided by us in 13 I. T . A . N o . 1 5 4 4 / M u m / 2 0 0 0 & O t h e r s HDFC Bank Ltd.

favour of the assessee and against the Revenue in ITA No.1700/M/2000. Following our own finding, Ground No.1 is dismissed.

16. Ground No.2 relates to the deletion of the addition on account of interest expenditure attributable to earn tax free income. Similar issue has been decided in favour of the assessee and against the Revenue in ITA No.2790/M/2000 for A.Y 1997-98 vide ground No.2 of that appeal. Following the finding for A.Y 1997-98 this ground is dismissed.

17. In the result, appeal filed by the Revenue is dismissed.

Order pronounced in the open court at the time of hearing on 18th of Feb. 2015.

Sd/- Sd/- (AMIT SHUKLA ) (N.K. BILLAIYA) याियक सदःय/JUDICIAL MEMBER लेखा सदःय / ACCOUNTANT MEMBER मुंबई Mumbai; 4दनांक Dated : 18.02.2015 व.िन.स./ VM , Sr. PS

आदे श क0 ूितिल प अमे षत/Copy षत of the Order forwarded to : 1. अपीलाथ- / The Appellant 2. ू/यथ- / The Respondent. 3. आयकर आयु6(अपील) / The CIT(A)- 4. आयकर आयु6 / CIT 5. वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुब ं ई / DR, ITAT, Mumbai 6. गाड फाईल / Guard file. आदे शानुसार/ ार BY ORDER, स/या पत ूित //True Copy// उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण मुंबई / ITAT, Mumbai