Rak Ceramics India Private Limited, Secunderabad v. Dy. Commissioner of Income Tax , Circle-3(1), Hyderabad

ITA 2226/Hyd/2017 | 2013-2014
Pronouncement Date: 15-11-2019 | Result: Allowed

Appeal Details

RSA Number 222622514 RSA 2017
Assessee PAN ITANO2226O
Bench Hyderabad
Appeal Number ITA 2226/Hyd/2017
Duration Of Justice 1 year(s) 10 month(s) 19 day(s)
Appellant Rak Ceramics India Private Limited, Secunderabad
Respondent Dy. Commissioner of Income Tax , Circle-3(1), Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 15-11-2019
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB-A
Tribunal Order Date 15-11-2019
Date Of Final Hearing 28-10-2019
Next Hearing Date 28-10-2019
Last Hearing Date 10-04-2019
First Hearing Date 25-06-2018
Assessment Year 2013-2014
Appeal Filed On 26-12-2017
Judgment Text
ITA NO 2226 OF 2017 RAK CERAMICS INDIA P LTD SECUND ERABAD. PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH HYDERABAD BEFORE SMT. P. MADHAVI DEVI JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY ACCOUNTANT MEMBER ITA NO.2226/HYD/2017 ASSESSMENT YEAR: 2013-14 M/S. RAK CERAMICS INDIA PRIVATE LIMITED SECUNDERABAD PAN: AACCR6424N VS. DY. COMMISSIONER OF INCOME TAX CIRCLE 3(1) HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI ASHIK SHAH REVENUE BY : SRI Y.V.S.T. SAI CIT-DR DATE OF HEARING: 28/10/2019 DATE OF PRONOUNCEMENT: 15/11/2019 ORDER PER SMT. P. MADHAVI DEVI J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2013-14 AGAIN ST THE FINAL ASSESSMENT ORDER PASSED U/S 143(3) R.W.S. 144C (13) OF THE I.T. ACT DATED 30.10.2017. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY ENGAGED IN THE BUSINESS OF MANUFACTURE OF CERAMIC V ITRIFIED TILES & SANITARY WARES FILED ITS RETURN OF INCOME FOR THE A.Y 2013-14 ON 29.11.2013 ADMITTING A LOSS OF RS.2 69 10 242/-. DU RING THE ASSESSMENT PROCEEDINGS U/S 143(3) R.W.S. 92CA(3) OF THE ACT THE AO OBSERVED THAT THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS.31 00 777/- TOWARDS LEASE RENTAL U/S 37 IN THE COMPUTATION OF INCOME. OBSERVING THAT THE ASSESSEE HAS NOT GIVE N ANY REASON FOR CLAIMING THE SAME IN THE COMPUTATION RATHER THA N IN THE P&L ITA NO 2226 OF 2017 RAK CERAMICS INDIA P LTD SECUND ERABAD. PAGE 2 OF 6 A/C THE AO DISALLOWED THE SAME AND BROUGHT IT TO T AX. AGAINST THE DRAFT ASSESSMENT ORDER THE ASSESSEE FILED ITS OBJECTIONS BEFORE THE DRP. THE DRP NOTED THAT OUT OF THE CLAIM OF DED UCTION OF RS.31 00 777/- AN AMOUNT OF RS.28 64 684/- REPRESE NTED REPAYMENT OF LOANS AND THE BALANCE AMOUNT OF RS.2 3 6 096/- ONLY WAS TOWARDS LEASE RENT. THE DRP HELD THAT THE REPAY MENT OF THE PRINCIPLE AMOUNT IS IN THE CAPITAL A/C AND WOULD NO T BE ELIGIBLE FOR DEDUCTION AS REVENUE EXPENDITURE. FOLLOWING THE DEC ISION OF THE DRP THE FINAL ASSESSMENT ORDER WAS PASSED ALLOWING ONLY THE SUM OF RS.2 36 096/- AND MAKING THE ADDITION OF RS. 28 64 684/- AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US B Y RAISING THE FOLLOWING GROUNDS OF APPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW: 1. THE ORDER DATED OCTOBER 30 2017 PASSED BY LEARNE D AO UNDER SECTION 143(3) R.W.S 144C(13) OF THE ACT IS E RRONEOUS AND CONTRARY TO LAW AND HENCE LIABLE TO BE QUASHED . 2. THE LEARNED AO/HON'BLE DRP ERRED IN DISALLOWING THE CLAIM OF LEASE RENT OF RS. 28 64 684 UNDER THE PROV ISIONS OF THE ACT DISREGARDING THE FACT THAT THE LEASE RENTAL S PAID ARE REVENUE IN NATURE. 3. THE LEARNED AO/HON'BLE DRP ERRED IN BIFURCATING THE LEASE RENTAL INTO PRINCIPAL AND INTEREST AND ERRED IN TREATING THE PRINCIPAL COMPONENT OF LEASE RENTALS OF RS.28 6 4 684 AS CAPITAL IN NATURE AND DISALLOWING THE SAME. THE GROUNDS MENTIONED HEREIN ARE WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT CRAVES LEAVE TO ADD TO AND/OR TO ALTE R AMEND RESCIND MODIFY THE GROUNDS HEREIN ABOVE OR PRODUCE FURTHER DOCUMENTS BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 3. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE DRP WHILE THE LEARNED D R SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. ITA NO 2226 OF 2017 RAK CERAMICS INDIA P LTD SECUND ERABAD. PAGE 3 OF 6 4. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F ICDS LTD VS. CIT (2013) 29 TAXMANN.COM 129 (S.C) WHEREIN THE HON 'BLE SUPREME COURT WAS CONSIDERING THE ALLOWABILITY OF D EPRECIATION OF LEASED VEHICLES IN THE HANDS OF THE ASSESSEE THEREI N WHO WAS ENGAGED IN THE BUSINESS OF HIRE PURCHASE OF VEHICLE S AND LEASING OF SUCH VEHICLES AND REAL ESTATE ETC. THE HON'BLE S UPREME COURT HELD THAT THE ASSESSEE THEREIN WAS RECORDED AS THE EXCLUSIVE OWNER OF THE VEHICLES AT ALL POINTS OF TIME AND IN CASE OF DEFAULT COMMITTED BY THE LESSEE THEREIN THE ASSESSEE LESSO R WAS EMPOWERED TO RE-POSSESS VEHICLES AS THE OWNER OF TH E VEHICLES. THUS IT WAS HELD THAT THE LESSOR IS ELIGIBLE FOR D EPRECIATION THEREON. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMI TTED THAT IN THE CASE BEFORE US THE ASSESSEE IS THE LESSEE OF T HE VEHICLES AND THEREFORE NOT THE OWNER OF THE VEHICLES AND THE EN TIRE AMOUNT PAID AS LEASE RENTAL HAS TO BE ALLOWED AS REVENUE E XPENDITURE. HE ALSO PLACED BEFORE US THE COPY OF THE AGREEMENT OF LEASE. FURTHER HE ALSO PLACED RELIANCE UPON THE DECISION IN THE CA SE OF RAJSHREE ROADWAY VS. UNION OF INDIA (2003) 29 TAXMANN.COM 66 3 (RAJ.). 5. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD WE FIND THAT AS PER THE TERMS OF THE AGR EEMENT L&T FINANCE LTD IS THE LESSOR AND THE ASSESSEE IS THE LESSEE. SUB CLAUSE 1.10 OF CLAUSE (I) DEFINES LEASE RENTAL AS THE AMOUNT OF PERIODICAL PAYMENTS MADE FOR THE USE OF THE ASSETS BY THE LESSEE TO THE LESSOR AS SPECIFIED UNDER SCHEDULE TOGETHER WITH TAXES APPLICABLE FROM TIME TO TIME. CLAUSE 1.11 DEFINES OTHER CHARGES TO INCLUDE BUT NOT RESTRICTED TO UPFRONT FEES MANA GEMENT FEES REGISTRATION CHARGES STAMP DUTY AND DOCUMENTATION CHARGES ETC. WHETHER PAID OR PAYABLE BY THE LENDER. AS PER THE C LAUSE 3 OF THE ITA NO 2226 OF 2017 RAK CERAMICS INDIA P LTD SECUND ERABAD. PAGE 4 OF 6 AGREEMENT THE LESSEE AGREES TO PAY TO THE LESSOR L EASE RENTALS AND OTHER CHARGES AS SPECIFIED PUNCTUALLY ON OR BEFORE THE DUE DATE. SUB CLAUSE 12.3 OF CLAUSE 12 SPECIFIES THAT ON EXPI RATION OF THE AGREEMENT OR TERMINATION OF THE LEASE THE ASSETS C AN BE REPOSSESSED BY THE LESSOR AND IF THE REPOSSESSED AS SETS DO NOT FETCH A SALE VALUE MORE THAN OR EQUAL TO ALL MONEY S DUE UNDER THE AGREEMENT INCLUDING THE FUTURE PAYMENTS PAYABLE LESSEE SHALL MAKE GOOD THE LOSS BY PAYING THE DIFFERENCE BETWEEN THE TOTAL OF THE RECEIVABLE BY THE LESSOR AND THE SALE PRICE. FU RTHER IT IS SEEN FROM THE AGREEMENT THAT ASSESSEE IS REQUIRED TO SEL ECT THE ASSET AND PAY THE INSURANCE FOR THE ASSET AND HAS TO PAY THE LEASE RENTALS AND OTHER CHARGES IN ACCORDANCE WITH THE SC HEDULES. IN CASE OF FAILURE BY THE ASSESSEE TO PAY THE RENTALS THE SAID ASSET CAN BE TAKEN OVER BY THE LESSOR. IT IS ALSO STIPULA TED THAT THE VEHICLES SHALL BE REGISTERED IN THE NAME OF THE LES SOR. IN THE CASE OF RAJSHREE ROADWAY VS. UNION OF INDIA (2003) 29 TA XMANN.COM 663 (RAJ.) THE HON'BLE RAJASTHAN HIGH COURT HAS CO NSIDERED SIMILAR CASE WHEREIN THE ASSESSEE WHO WAS CARRYING ON TRANSPORT BUSINESS HAD ENTERED INTO A LEASE AGREEMENT FOR TA KING ON LEASE CERTAIN TRUCKS AND IN TERMS OF THE AGREEMENT BOTH THE PARTIES HAD AGREED THAT DURING THE LEASE PERIOD THE LESSOR WOULD BE THE OWNER OF THE TRUCKS AND WOULD GET THE BENEFIT OF DE PRECIATION AND LESSEE WOULD HAVE NO RIGHT TO TRANSFER OR ALIENATE SUCH TRUCKS TO OTHER PARTIES IN ANY FORM AND THEREFORE THE LEASE RENT PAID BY THE ASSESSEE SHOULD BE ALLOWED AS REVENUE EXPENDITURE. IN THE CASE OF ICDS ALSO THE HON'BLE SUPREME COURT HAS HELD THAT THE LESSOR IS THE OWNER OF THE PROPERTY AND IS ELIGIBLE FOR DEPRE CIATION ON THE VEHICLES LEASED OUT. WE FIND THAT IT IS THE ASSESSE E WHO HAS STATED BEFORE THE DRP THAT THE LEASE RENTALS PAID BY THE A SSESSEE INCLUDED THE PRINCIPAL AMOUNT OF RS.28.00 LAKHS AND FINANCE CHARGES OF RS.36 096/-. IT IS ALSO STATED THAT IN T HE BOOKS OF ITA NO 2226 OF 2017 RAK CERAMICS INDIA P LTD SECUND ERABAD. PAGE 5 OF 6 ACCOUNT OF THE COMPANY THE ASSETS WERE CAPITALIZED AND THE DEPRECIATION WAS CLAIMED BUT WHILE COMPUTING THE TAXABLE INCOME THE ASSESSEE HAD ADDED BACK THE DEPRECIATIO N CLAIMED IN THE BOOKS OF ACCOUNT AND ONLY CLAIMED IT AS REVENUE EXPENDITURE. AS RIGHTLY POINTED OUT BY THE LEARNED DR DEPRECIAT ION CAN BE ALLOWED ONLY IN THE HANDS OF ONE PARTY I.E. THE OWN ER OF THE PROPERTY. AS HELD BY THE HON'BLE SUPREME COURT IN T HE CASE CITED SUPRA THE LESSOR CONTINUES TO BE THE OWNER OF THE PROPERTY OF THE ASSETS TILL THE ENTIRE PAYMENT INCLUDING THE FINANC E CHARGES ARE PAID TO THE LESSOR. ADMITTEDLY THE ASSESSEE HAD NO T CLAIMED DEPRECIATION ON THE SAID ASSETS AND EVEN AS PER TH E DEFINITION OF THE LEASE RENTALS IN THE AGREEMENT IT IS THE PAYME NT MADE FOR THE USE OF THE ASSET. THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT AND THE HON'BLE RAJASTHAN HIGH COURT IN THE CASES CITED SUPRA WE HOLD THAT THE ASSESSEE IS ELIGIBLE TO CLAIM THE LEASE RENTALS AS REVENUE EXPENDITURE. 6. IN THE RESULT ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH NOVEMBER 2019. SD/- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD DATED 15 TH NOVEMBER 2019. VINODAN/SPS ITA NO 2226 OF 2017 RAK CERAMICS INDIA P LTD SECUND ERABAD. PAGE 6 OF 6 COPY TO: 1 M/S. RAK CERAMICS INDIA (P) LTD PO BOX NO.11 ADB ROAD SAMALKOT 533440 A.P 2 DY. CIT CIRCLE 3(1) ROOM NO.714 7 TH FLOOR SIGNATURE TOWERS KONDAPUR HYDERABAD 500084 3 DRP-1 KENDRIYA SADAN 4 TH FLOOR B&C WING BENGALURU 560034 4 5 PR. CIT 3 HYDERABAD CCIT(IT)(SZ) BENGALURU 6 THE DR ITAT HYDERABAD 7 GUARD FILE BY ORDER