Indian Railway Fin.Corpn. Ltd.,, v. Addl.CIT, R-II,,

ITA 2594/DEL/2005 | 2001-2002
Pronouncement Date: 31-01-2011 | Result: Allowed

Appeal Details

RSA Number 259420114 RSA 2005
Assessee PAN AAACI0681C
Bench Delhi
Appeal Number ITA 2594/DEL/2005
Duration Of Justice 5 year(s) 8 month(s) 3 day(s)
Appellant Indian Railway Fin.Corpn. Ltd.,,
Respondent Addl.CIT, R-II,,
Appeal Type Income Tax Appeal
Pronouncement Date 31-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 31-01-2011
Date Of Final Hearing 06-10-2010
Next Hearing Date 06-10-2010
Assessment Year 2001-2002
Appeal Filed On 27-05-2005
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH B DELHI ] BEFORE SHRI R. P. TOLANI JM & SHRI K. D. R ANJAN AM I. T. APPEAL NO. 2594 (DEL) OF 2005. ASSESSMENT YEAR : 200102. M/S. INDIAN RAILWAY FINANCE CORPN. LTD. ADDL. COMMISSIONER OF INCOME-TAX UG FLOOR EAST TOWER NBCC PLACE VS. R A N G E : 11 BHISHAM PITAMAH MARG LODHI ROAD N E W D E L H I. N E W D E L H I 110 003. P A N / G I R NO. AAA CI 0681 C. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI S. KRISHNAN ADV.; DEPARTMENT BY : SHRI STEPHEN GEORGE [CIT] D . R.; O R D E R. PER K. D. RANJAN AM : THIS APPEAL BY THE ASSESSEE FOR ASSESSMENT YEAR 20 01-02 ARISES OUT OF ORDER OF THE LD. CIT (APPEALS)-XIV NEW DELHI. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE RE AD AS UNDER :- 1. THAT THE LD. CIT (APPEALS)XIV HAS ERRED I N CONFIRMING THE ADDITION OF RS.1 42 02 48 221/- TO BOOK PROFIT ON ACCOUNT OF L EASE EQUALIZATION CHARGE (WHICH REPRESENTS CAPITAL RECOVERY) DEBITED TO PROF IT AND LOSS ACCOUNT AS PER THE 2 I. T. APPEAL NO. 2594 (DEL) OF 2005 . MANDATORY GUIDANCE NOTE ON ACCOUNTING FOR LEASES I SSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND IGNORING THE ORD ERS OF PREDECESSOR CIT (APPEALS) IN EARLIER YEARS; 2. THAT THE LD. CIT (APPEALS)XIV HAS ERRED IN CONFIRMING THE ADDITION OF RS.1 42 02 48 221/- TO TOTAL INCOME ON ACCOUNT OF L EASE EQUALIZATION CHARGE (WHICH REPRESENTS CAPITAL RECOVERY) DEBITED TO PROF IT AND LOSS ACCOUNT AS PER THE MANDATORY GUIDANCE NOTE ON ACCOUNTING FOR LEASES I SSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA; 3. THAT THE LD. CIT (APPEALS)XIV HAS ERRED IN UPHOLDING THE DISALLOWANCE OF BOND ISSUE EXPENSES OF RS.10 09 92 445/- INSTEAD OF TREATING THE SAME AS REVENUE EXPENDITURE AS CLAIMED BY THE ASSESSEE IG NORING THE FACTS AND CIRCUMSTANCES THAT THE ASSESSEE COMPANY IS ENGAGED IN LEASING ROLLING STOCK ASSETS TO THE MINISTRY OF RAILWAYS ON SINGLE CLIENT RELATIONSHIP BASIS AND THE MONEY RAISED HAS BEEN UTILIZED FOR ACQUIRING ROLLIN G STOCK ASSETS AND NOT FOR EXPANSION OF THE UNDERTAKING. THE LD. CIT (APPEALS ) XIV HAS ERRED IN CONFIRMING THE ADDITION; 4. THAT THE LD. CIT (APPEALS)XIV HAS ERRED IN UPHOLDING DISALLOWANCE OF DEPRECIATION ON OFFICE BUILDING PURCHASED FROM NBCC IGNORING THE FACTS AND CIRCUMSTANCES THAT THE ASSESSEE IS IN OCCUPATION OF THE PREMISES AND NOT RECOGNIZING THE EVIDENCE THEREOF ON THE BASIS OF A SSUMPTIONS. 3. THE FIRST ISSUE FOR CONSIDERATION RELATES TO CON FIRMING THE ADDITION OF RS.1 42 02 48 221/- TO BOOK PROFIT ON ACCOUNT OF LEASE EQUALIZATION CHA RGES. THE ASSESSEE IN PROFIT AND LOSS ACCOUNT DEBITED AN AMOUNT OF RS.1 42 02 48 221/- ON ACCOUNT OF LEASE EQUALIZATION CHARGES. IN RESPONSE TO A QUERY IT WAS SUBMITTED BY THE ASSESSEE THAT RO LLING STOCK GIVEN TO RAILWAYS ON LEASE COMES UNDER THE SCOPE OF FINANCE LEASE. ACCORDINGLY LEA SE RENTALS COMPRISED OF FINANCE INCOME AND NET INVESTMENT IN THE LEASED ASSETS. THUS LEASE EQ UALIZATION CHARGES REPRESENT RECOVERY OF FAIR VALUE OF THE LEASED ASSETS OVER THE LEASE TERM AND THE SAME IS DEDUCTED FROM LEASE RENTALS TO 3 I. T. APPEAL NO. 2594 (DEL) OF 2005 . BIFURCATE ANNUAL LEASE RENTALS INTO REVENUE COMPONE NT AND CAPITAL PORTION. THIS TREATMENT AS PER THE ASSESSEE WAS IN ACCORDANCE WITH THE REVISED GUI DE-LINES ISSUED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ON ACCOUNTING FOR LEASE RENTAL S. THIS CONTENTION OF THE ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER. HE WAS OF THE O PINION THAT THE METHOD OF COMPUTATION OF INCOME FOR INCOME-TAX PURPOSES IS NOT DETERMINED BY THE GUIDE-LINES ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. IN THE CASE OF ASS ESSEE THE DEPRECIATION WAS CLAIMED ON THE LEASED ASSETS AND THEREFORE THERE WAS NO REASON F OR REDUCING THE LEASE RENTALS BY ANY NOTIONAL AMOUNT I.E. LEASE EQUALIZATION ON THE GROUND THAT A S PER INCOME-TAX ACT NO SUCH DEDUCTION SHALL BE ALLOWABLE TO THE ASSESSEE. ACCORDINGLY THE AO ADDED THE AMOUNT OF RS.1 42 02 48 221/- TO NET INCOME AS PER PROFIT AND LOSS ACCOUNT WHILE COM PUTING BOOK PROFITS U/S 115JB OF THE ACT. 4. ON APPEAL THE LD. CIT (A) RELYIED ON AUTHORITY F OR ADVANCE RULING IN THE CASE OF NATIONAL HYDRO ELECTRIC POWER CORPORATION LTD. 2005 (TIOL) 07 ARA IT DATED 17/12/2004. IN THIS CASE THE ASSESSEE REDUCED THE SALE PRICE RE CEIVED ON ACCOUNT OF ADVANCED AGAINST DEPRECIATION WHICH WAS HELD TO BE RESERVED BY AUTH ORITY FOR ADVANCE RULING AND WAS REQUIRED TO BE ADDED TO THE BOOK PROFITS WHILE MAKING ADJUST MENTS UNDER EXPLANATION TO SECTION 115-JB OF THE ACT. HE THEREFORE UPHELD THE ADDITION MADE B Y THE ASSESSING OFFICER. 5. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED T HAT THE LD. CIT (APPEALS) HAS OBSERVED THAT IF LEASE RENTALS ACTUALLY INCLUDE PARTIAL REIM BURSEMENT OF CAPITAL COST OF THE LEASED ASSETS THA T PORTION OF LEASE RENTALS WOULD AMOUNT TO CAPITAL RE CEIPT THOUGH IN PREVIOUS YEAR LEASE INCOME HAS BEEN HELD TO BE TAXABLE AS REVENUE RECEIPT. THE DE CISION OF AUTHORITY FOR ADVANCE RULING RELIED UPON BY THE LD. CIT (A) IN THE CASE OF NHPC (SUPRA) HAS BEEN REVERSED BY HONBLE SUPREME COURT IN NHPCS CASE REPORTED AS 320 ITR 374 (SC) W HEREIN IT HAS BEEN HELD THAT ADVANCED AGAINST DEPRECIATION AS ACCOUNTED FOR BY THE ASSES SEE THEREIN THOUGH IN THE NATURE OF INCOME RECEIVED AS ADVANCE IS NOT A RESERVE FOR THE PURPO SE OF SECTION 115-JB AND THEREFORE WAS AN ALLOWABLE DEDUCTION FOR THE PURPOSE OF COMPUTING BO OK PROFIT. IT HAS FURTHER BEEN SUBMITTED THAT THOUGH THE REVENUE PREFERRED APPEALS ON THIS IS SUE TO ITAT IN RESPECT OF ASSESSMENT YEARS 1998-99 TO 2000-01 BUT THE PERMISSION TO PURSUE THE ISSUE WAS DENIED BY THE COD. THUS THE 4 I. T. APPEAL NO. 2594 (DEL) OF 2005 . ORDERS OF THE LD. CIT (A) HAVE ATTAINED FINALITY A ND COULD NOT HAVE BEEN DISTURBED BY THE CURRENT INCUMBENT. HE FURTHER SUBMITTED THAT THIS ISSUE IS ALSO COVERED IN ASSESSEES FAVOUR BY THE DECISION OF HONBLE ITAT DELHI BENCH IN THE CASE O F G.E. CAPITAL TRANSPORTATION FINANCIAL SERVICES LTD. VS. ACIT 301 ITR (AT) 69 (DEL). ON T HE OTHER HAND THE LD. SR. DR SUPPORTED THE ORDER OF THE LD. CIT (APPEALS). 6. WE HAVE HEARD BOTH THE PARTIES. EXPLANATION 1 T O SECTION 115-JB(2) DEFINES THE BOOK PROFIT AND MEANS THE NET PROFIT AS SHOWN IN THE PRO FIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED IN ACCORDANCE WITH THE PROVISIONS OF PART II AND III OF SCHEDULE VI TO THE COMPANIES ACT 1956 AS INCREASED BY THE AMOUNT SPEC IFIED IN CLAUSE (A) TO (I) IF ANY AMOUNT REFERRED TO IN THESE CLAUSES IS DEBITED TO PROFIT A ND LOSS ACCOUNT. THE LD. CIT (APPEALS) HAS UPHELD THE ADDITION RELYING ON THE DECISION OF AUTH ORITY FOR ADVANCE RULING IN THE CASE OF NHPC LTD. THIS DECISION OF THE NHPC (SUPRA) HAS BEEN RE VSERSED BY HONBLE SUPREME COURT IN THE CASE OF NHPC (SUPRA) WHEREIN IT HAS BEEN HELD THAT TO MAKE AN ADDITION UNDER CLAUSE (B) OF EXPLANATION 1 TO SECTION 115-JB(2) OF THE INCOME-TA X ACT PROVIDING FOR THE BOOK PROFITS OF CERTAIN COMPANIES TWO CONDITIONS MUST BE JOINTLY S ATISFIED : (A) THERE MUST BE A DEBIT OF ALLOWANCE TO THE PROFIT AND LOSS ACCOUNT; AND (B) T HE AMOUNT SO DEBITED MUST BE CARRIED TO RESERVE. FURTHER THE RESERVE CONTEMPLATED BY CLAUS E (B) OF EXPLANATION (1) TO SECTION 115-JB(2) IS REQUIRED TO BE CARRIED THROUGH PROFIT AND LOSS A CCOUNT. HONBLE SUPREME COURT HAS FURTHER HELD THAT ADVANCED AGAINST DEPRECIATION (AAD) WAS N OT A RESERVE NOR WAS IT AN APPROPRIATION OF PROFITS. THE AAD WAS AN ADVANCE AGAINST DEPRECIATI ON. THE AAD WAS NOTHING BUT WAS AN ADJUSTMENT BY REDUCING THE NORMAL DEPRECIATION INCL UDIBLE IN FUTURE YEARS IN SUCH A MANNER THAT AT THE END OF THE USEFUL LIFE OF THE PLANT IT WOULD BE REDUCED TO NIL. THEREFORE THE AAD WAS NOT TREATED AS RESERVE. 7. WE ALSO FIND THAT ITAT DELHI BENCH IN THE CASE OF G.E. CAPITAL TRANSPORTATION FINANCIAL SERVICES LTD. (SUPRA) HAS HELD THAT AMOUNT OF LEASE UTILIZATION WAS A CHARGE WHICH HAD BEEN DEDUCTED TO ARRIVE AT THE TRUE AND CORRECT PROFIT O F THE LEASING BUSINESS AND IT WAS THUS NEITHER AN APPROPRIATION OF PROFIT NOR ALLOCATION OF PART OF P ROFITS TO ANY FUND SO AS TO CALL IT AS A RESERVE. 5 I. T. APPEAL NO. 2594 (DEL) OF 2005 . THE SAID CHARGE WAS CREATED AS A RESULT OF DEBIT TO A PROFIT AND LOSS ACCOUNT AND NOT TO A DEBIT TO APPROPRIATION ACCOUNT. RESERVES WERE PART OF UN-DI STRIBUTED PROFITS OF THE BUSINESS AND THEREFORE PART OF CAPITAL OF BUSINESS. THE AMOUNT OF LEASE EQUALIZATION CHARGES HOWEVER WERE NEITHER THE PORTION OF EARNING OR PROFITS OF AN ENT ERPRISES NOR WAS IT APPROPRIATED FOR A GENERAL OR SPECIFIC PURPOSE. 8. IN VIEW OF THE ABOVE IT IS APPARENT THAT LEASE E QUALIZATION CHARGES ARE NOT IN THE NATURE OF RESERVE TO BE ADDED UNDER CLAUSE (B) OF EXPLANATION 1 TO SECTION 115-JB(2). THEREFORE THE LD. CIT (A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLO WANCE OF LEASE EQUALIZATION CHARGES FOR THE PURPOSE OF COMPUTATION OF BOOK PROFITS. THE ASSESSI NG OFFICER IS DIRECTED TO DELETE THE ADDITION. 9. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DISA LLOWANCE OF LEASE EQUALIZATION CHARGES DEBITED TO PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER WHILE COMPUTING THE TOTAL INCOME UNDER NORMAL PROVISIONS OF THE ACT ADDED THE AMOUNT OF LE ASE EQUALIZATION CHARGES AT RS.1 42 02 48 221/-. THE LD. CIT (APPEALS) FOLLOWI NG THE DECISION FOR ASSESSMENT YEARS 1997-98 TO 2000-01 UPHELD THE DISALLOWANCE. 10. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED THAT ITAT DELHI BENCH B FOR ASSESSMENT YEARS 1997-98 TO 2000-01 IN ITA. NO. 699 359 3357 AND 2109 (DEL) OF 2004 DATED 8/08/2008 HAS DECIDED THE ISSUE IN FAVOUR OF THE AS SESSEE. ON THE OTHER HAND THE LD. SR. DR SUBMITTED THAT THE ISSUE HAS NOT BEEN EXAMINED BY T HE ASSESSING OFFICER ON THE LINES OF THE DECISION OF THE ITAT AND THEREFORE THE ISSUE MAY BE SET ASIDE TO THE ASSESSING OFFICER. HE THEREFORE REQUESTED THAT THE ISSUE MAY BE SET ASID E TO THE ASSESSING OFFICER AS HAS BEEN DONE BY THE ITAT FOR ASSESSMENT YEAR 1997-98 AS THE ASSESSE E HAS NOT FURNISHED CHART FOR DEDUCTION ON ACCOUNT OF DEPRECIATION. 11. WE HAVE HEARD BOTH THE PARTIES. WE FIND THAT T HE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE ITAT. THE OPERATING DECISION IS IN PARAGRAPH 20 WHICH READS AS UNDER AS UNDER:- 6 I. T. APPEAL NO. 2594 (DEL) OF 2005 . 20. IN THIS REGARD WE FIND THAT IN THE INITIAL Y EARS THE ASSESSEE MAY GET EXTRA DEDUCTION BUT THAT IS NOT ON ACCOUNT OF ALLOWING DE DUCTION OF LEASE EQUALIZATION AMOUNT DEBITED IN THE PROFIT AND LOSS ACCOUNT BUT IT IS O N ACCOUNT OF DEPRECIATION AS PER COMPANYS ACT DEBITED IN BOOKS AND DEPRECIATION AS PER I. T. RULES ALLOWABLE BECAUSE IF YOU CONSIDER THE TOTAL DEDUCTION DURING THE FULL PE RIOD OF LEASE WHICH IS 30 YEARS IN THE PRESENT CASE WE FIND NO DEDUCTION STAND ALLOWED TO THE ASSESSEE ON ACCOUNT OF LEASE EQUALIZATION BECAUSE THERE ARE DEBITS IN SOME YEARS AND CREDIT IN SOME OTHER YEARS AND THE SUM TOTAL FOR THE ENTIRE PERIOD OF 30 YEARS IS NIL. DEPRECIATION ALLOWED TO THE ASSESSEE IN THE PRESENT ASSESSMENT YEARS AS PER I. T. RULES IS HIGHER AS COMPARED TO DEPRECIATION AS PER COMPANY ACT BUT THE TOTAL DEPR ECIATION ALLOWABLE TO THE ASSESSEE UNDER I. T. RULES IN FULL LEASE PERIOD OF 30 YEARS CANNOT EXCEED THE COST OF THE ASSETS AND HENCE TOTAL DEDUCTION ACTUALLY ALLOWED TO THE ASSE SSEE WILL BE ONLY DEPRECIATION ALLOWABLE TO THE ASSESSEE AS PER I. T. RULES. DEPR ECIATION IS ALLOWED BY THE ASSESSING OFFICER. SINCE SUM TOTAL OF LEASE EQUALIZATION IN FULL LEASE PERIOD OF 30 YEARS IS NIL THERE IS NO CASE TO DISALLOW OR ALTER THE LEASE EQUALIZAT ION DEBITED TO THE PROFIT AND LOSS ACCOUNT. HENCE THIS GROUND OF ASSESSEE IS ALLOWED IN ALL FOUR YEARS. 12.1 SINCE THE ISSUE IS COVERED BY THE DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 1997-98 TO 2000-01 RESPECTFULLY F OLLOWING THE PRECEDENT IT IS HELD THAT LEASE UTILIZATION AMOUNT DEBITED TO THE PROFIT AND LOSS A CCOUNT WILL BE ALLOWABLE AS DEDUCTION. HOWEVER WE FIND THAT IN PARA 11 OF THIS ORDER THE TRIBUNAL HAVE SET ASIDE THE MATTER FOR CERTAIN VERIFICATION. THE DIRECTION CONTAINED IN PARA 11 R EADS AS UNDER:- THE CHARGE FOR 30 YEARS OF OPENING BALANCE IN THE PRESENT YEAR I.E. AY 1997-98 IS SUBMITTED BY THE LD. AR OF THE ASSESSEE. AS PER THE SAME OPENING BALANCE OF THE LEASED ASSETS IS RS.1 26 256.37 LAKHS RATE OF DEPRECIATION AS PER COMPANYS ACT IS 4.75 PER CENT AND RATE OF INTEREST IS 14.97 PER CENT. THE TOTAL FOR 30 YEARS OF DEPRECIATION IS RS.126 RS.256.42 LAKHS AND FINA NCE INCOME IS RS.157 820.46 LAKHS. THE TOTAL OF CAPITAL RECOVERY IS RS.126 256 .37 LAKHS AND TOTAL OF LEASE EQUALIZATION IS NIL. SINCE IN THE PRESENT CASE ALS O AS PER THIS CHART EVEN AFTER 7 I. T. APPEAL NO. 2594 (DEL) OF 2005 . DEDUCTION OF FINANCE INCOME AT 14.97 PER ANNUM THE FULL VALUE OF THE COST OF ASSETS I.E. RS.162 256 LAKHS IS FULLY COVERED IN LE ASE PERIOD OF 30 YEARS AND HENCE IT IS A CASE OF FINANCE LEASE AS PER THE GUIDE-LINE S ISSUED BY ICAI. IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS CITED BY THE LD. AR OF THE ASSESSEE WE FIND NO REASON FOR NOT ACCEPTING THE BASIS AS SUGGESTED BY ICAI IN THESE GUIDE-LINES FOR DECIDING THE CHARACTER OF LEASE IN THE PRESENT CASE AS FINANCE LEASE. HOWEVER THE ASSESSEE COMPANY HAS GIVEN THIS CHART FOR OPENING V ALUE OF LEASED ASSETS IN AY 1997-98 WHICH IS EXAMINED BY US. SIMILAR CHART FO R ASSETS GIVEN ON LEASE DURING AY 1997-98 AND IN SUBSEQUENT YEARS IS NOT FURNISHED TO US. HENCE THE AO SHOULD VERIFY THOSE CHARTS AND IF THIS CONDITION IS SATISF IED ALL THOSE TRANSACTIONS SHOULD ALSO BE ACCEPTED AS FINANCE LEASE TRANSACTION. 12.2 SINCE THE TRIBUNAL HAS DIRECTED TO EXAMINE THE NATURE OF TRANSACTIONS IN ASSESSMENT YEAR 1997-98 TO 2000-01 AND SINCE SIMILAR CHARTS HAS NOT BEEN FILED FOR THE YEAR UNDER CONSIDERATION WE SET ASIDE THE MATTER TO THE FILE OF THE ASSESSIN G OFFICER WITH THE DIRECTION TO EXAMINE THE TRANSACTIONS AS PER ABOVE DIRECTIONS OF THE ITAT. WE ORDER ACCORDINGLY. 13. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DIS ALLOWANCE OF BOND ISSUE EXPENSES. THE ASSESSEE INCURRED AN AMOUNT OF RS.10 09 92 445/- TO WARDS BOND ISSUE EXPENSES OF DIFFERENT SERIES ISSUED DURING THE YEAR AND CLAIMED THESE EXPENSES A S DEDUCTION. THE ASSESSING OFFICER HOWEVER TREATED THE EXPENDITURE CAPITAL IN NATURE AS THE AM OUNT WAS INCURRED FOR RAISING CAPITAL. ON APPEAL THE LD. CIT (APPEALS) FOLLOWING HIS DECISION FOR AS SESSMENT YEAR 1997-98 UPHELD THE DISALLOWANCE. 14. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED THAT ITAT HAS ALLOWED THE APPEAL IN FAVOUR OF THE ASSESSEE IN ASSESSMENT YEARS 1997-98 TO 2000-01 VIDE PARAS 21 TO 25. ON THE OTHER HAND THE LD. SR. DR SUPPORTED THE ORDER OF THE LD. CIT (APPEALS). 8 I. T. APPEAL NO. 2594 (DEL) OF 2005 . 15. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ISSUE IS COVERED BY THE DECISION OF T HE ITAT FOR ASSESSMENT YEAR 1997-98 TO 2000- 01 WHEREIN IT HAS BEEN HELD AS UNDER:- 25. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF THE AUTH ORITIES BELOW AND THE JUDGEMENTS CITED BY THE LD. AR OF THE ASSESSEE. WE FIND THAT IN THE CASE OF M/S. KHIRANI CHEMICALS LTD. (SUPRA) THE ISSUE BEFORE HONBLE DELHI HIGH CO URT WAS REGARDING EXPENSES INCURRED ON ISSUE OF DEBENTURES. IN THAT CASE ALSO THE ASS ESSEE CLAIMED DEDUCTION OF THE ENTIRE EXPENSES IN THE YEAR OF ISSUE OF DEBENTURES WHEREAS THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE EXPENDITURE WOULD QUALIFY ONLY FOR AMORTIZATION UNDER SECTION 35-D OF THE I. T. ACT. UNDER THESE FACTS IT WAS HELD B Y HONBLE DELHI HIGH COURT THAT THE TRIBUNAL WAS PERFECTLY JUSTIFIED IN HOLDING THAT TH E EXPENDITURE WAS A PERMISSIBLE DEDUCTION AND ACCORDINGLY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. SINCE THE FACTS IN THE PRESENT CASE ARE SIMILAR WE DECIDE TH IS ISSUE IN THE PRESENT CASE ALSO IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE JUDGEMENT O F HONBLE DELHI HIGH COURT. GROUND NO. 2 OF THE ASSESSEES APPEAL IN ALL THE FOUR YEAR S STAND ALLOWED. 16. SINCE THE ISSUE IS SQUARELY COVERED BY THE DECI SION OF THE ITAT IN THE ASSESSEES OWN CASE RESPECTFULLY FOLLOWING THE PRECEDENT IT IS H ELD THAT BOND ISSUE EXPENSES WILL BE ALLOWABLE AS DEDUCTION AS REVENUE EXPENDITURE. THE ASSESSING OFF ICER IS DIRECTED TO DELETE THE ADDITION. 17. THE LAST ISSUE FOR CONSIDERATION RELATES TO DI SALLOWANCE OF DEPRECIATION ON COMPANYS OFFICE PREMISES AT NBCC PLACE LODHI ROAD NEW DELH I. THE ASSESSEE CLAIMED DEPRECIATION ON OFFICE BUILDING AT THE RATE OF 10 PER CENT AT RS.1 45 16 016/-. AS PER NOTES ON ACCOUNT THE AUDITORS HAVE NOTED THAT OFFICE BUILDING INCLUDING PARKING AREA HAS BEEN CAPITALIZED FROM THE DATE OF TAKING POSSESSION. HOWEVER THE SALE / TRANSFER DEED IS PENDING FOR EXECUTION IN FAVOUR OF THE ASSESSEE. THE AUDITORS HAVE FURTHER COMMENTED THAT DOCUMENTATION / REGISTRATION FORMALITIES WERE PENDING IN RESPECT OF OFFICE BUILDING INCLUDIN G PARKING AREA VALUING RS.15.17 CRORES. TO A QUERY RAISED BY THE ASSESSING OFFICER IT WAS SUBMI TTED THAT THE ASSESSEE WAS LEGAL OWNER OF THE 9 I. T. APPEAL NO. 2594 (DEL) OF 2005 . PREMISES AND WAS OCCUPYING THE SAME FOR THE PURPOSE OF BUSINESS. THE ASSESSEE SUBMITTED NECESSARY PROOF OF OCCUPATION OF THE BUILDING AND A GREEMENT FOR SALE EVIDENCING THE OWNERSHIP OF THE PROPERTY ALONG WITH LEGAL OPINION. THE REFE RENCE TO THE AUDITORS REMARK WAS WITH REFERENCE TO TECHNICAL FLAW IN THE TITLE WHICH DID NOT HAMPER THE OWNERSHIP OF THE COMPANY. IT WAS ALSO SUBMITTED THAT THE ASSESSEE IS A GOVT. OF INDIA UNDERTAKING AND HAD PURCHASED THE ABOVE OFFICE FROM NATIONAL BUILDING CONSTRUCTION CO RPORATION LTD. A GOVT. OF INDIA ENTERPRISES AND HAD COMPLIED WITH ALL THE FORMALITIES AND HAD T AKEN POSSESSION OF THE PREMISES DURING THE YEAR AND WAS OCCUPYING THE SAME FOR ITS BUSINESS. THIS CONTENTION OF THE ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER THAT AS PER SECTION 53-A O F TRANSFER OF PROPERTY ACT THE CONTRACT SHOULD BE IN WRITING. IT SHOULD BE SIGNED BY THE TRANSFER OR OR ON HIS BEHALF. THE TRANSFEREE SHOULD HAVE TAKEN THE POSSESSION OF THE PROPERTY. THUS MERE O CCUPATION OF THE BUILDING WAS NOT SUFFICIENT. THE LEGAL OPINION OF THE ADVOCATE DATED 4/03/2003 O NLY CLARIFIED THAT AGREEMENT TO SELL WAS NOT COMPULSORILY REQUIRED TO BE REGISTERED. AS PER AGR EEMENT DATED 11/04/2002 NBCC PROVISIONALLY ALLOTTED CERTAIN SPACE AT UPPER GROUND FLOOR CAR P ARKING AT BASEMENT AND EXCLUSIVE USE OF TOILETS. THE BUILDING WAS UNDER CONSTRUCTION AT TH AT TIME. ANOTHER AGREEMENT DATED 21/11/2002 NBCC HANDED OVER THE VACANT POSSESSION TO THE ASSES SEE. THEREFORE FROM THE ABOVE AGREEMENTS IT WAS CLEAR THAT UPTO 21/11/2002 NEIT HER THE PROPERTY IN QUESTION WAS IN EXISTENCE NOR WAS ANY WRITTEN AGREEMENT TO SELL. EVEN VACANT POSSESSION OF THE SPACE WAS NOT WITH THE ASSESSEE. MERE PAYMENT OF CONSIDERATION ON 14/06/2 009 IS NOT SUFFICIENT TO PROVE THAT THE ASSESSEE WAS OWNER OF AN IMMOVABLE PROPERTY WHICH WAS NOT IN EXISTENCE AT THAT TIME. HE ACCORDINGLY DISALLOWED THE CLAIM OF DEPRECIATION AM OUNTING TO RS.1 45 16 016/-. 18. ON APPEAL THE LD. CIT (APPEALS) OBSERVED THAT A S FAR AS THE AGREEMENT DATED 11/04/2002 WITH THE NBCC WAS CONCERNED ON GOING THROUGH THE A GREEMENT THE OBSERVATION MADE BY THE ASSESSING OFFICER HAD BEEN FOUND TO BE CORRECT. AT THE SAME TIME THE ASSESSEE HAD FILED A LETTER FROM NBCC DATED 29/03/2002 IN WHICH IT WAS CLEARLY MENTIONED THAT COMMERCIAL SPACE MEASURING 625 SQ MTS. ALLOTTED TO THE ASSESSEE VIDE LETTER DATED 28/04/1998 AND COMMERCIAL SPACE MEASURING 285 SQ. MTS. PURCHASED BY MMTC AND SOLD T O IRFC WAS HANDED OVER TO IRFC. IN VIEW OF THE CONTRADICTORY POSITION AND NO CONFIRMAT ION BEING FILED THAT IN THE AGREEMENT IT HAS BEEN WRONGLY MENTIONED THAT THE BUILDING WAS UNDER CONSTRUCTION AND ACTUALLY THE POSSESSION 10 I. T. APPEAL NO. 2594 (DEL) OF 2005 . HAD ALREADY BEEN HANDED OVER TO THE APPELLANT NO D EPRECIATION ON PART OF THE OFFICE SPACE PURCHASED FROM NBCC COULD BE ALLOWED. THE LD. CIT (A) THEREFORE UPHELD THE DISALLOWANCE IN RESPECT OF OFFICE SPACE PURCHASED FROM THE NBCC. 19. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE ITAT IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2002-03 HAS UPHELD THE CONTENTI ON OF THE ASSESSEE. ON THE OTHER HAND THE LD. SR. DR SUPPORTED THE ORDER OF THE LD. CIT (APPEALS) . 20.1 WE HAVE HEARD BOTH THE PARTIES. ITAT IN ORDER DATED 28/08/2009 FOR ASSESSMENT YEAR 2002-03 IN ITA. NO. 1735 (DEL) OF 2006 HAS ALLOWED DEPRECIATION ON THE OFFICE SPACE TAKEN FROM NBCC. ITAT WHILE DECIDING THE ISSUE HAS OBSERVED A S UNDER:- 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WH EN THE POSSESSION WAS HANDED OVER BY THE NBCC TO THE ASSESSEE THE POSSES SION LETTER NOTED AS UNDER :- POSSESSION OF THE FOLLOWING COMMERCIAL SPACE IS HANDED OVER TO INDIAN RAILWAY FINANCE CORPORATION LTD. NEW DELHI. (I) COMMERCIAL SPACE MEASURING 625.0104 SQ. M. (AP PROX.) UPPER GROUND FLOOR EAST TOWER OF NBCC PLACE PRAGATI VIH AR NEW DELHI. (REF. NBCCS ALLOTMENT LETTER NO. REM&D:98:854 DT. 28.4.98 AND LETTER NO.REM&D:99:836 DATED 5.11.1999) (II) COMMERCIAL SPACE MEASURING 284.9241 SQ. M. (PURCHASED BY MMTC AND SOLD TO IRFC; BY MMTC. REF:I RFCS LETTER NO.IRFC/O. ACCOM/NBCC DT. 14.1.2000 TO CE/REM&D NB CC) TOILET : COMPLETE FIRE FIGHTING POINTS = 49. 11 I. T. APPEAL NO. 2594 (DEL) OF 2005 . POSSESSION WITH REGARD TO 30 CAR PARKING AND 20 SCO OTER PARKING SLOTS WILL BE HANDED OVER SHORTLY. DRAWINGS FOR THE SAME ARE BEING OBTAINED FROM THE NBCC HQ OFFICE. FIRE-FIGHTING LAYOUT DRAWING W ILL ALSO BE SUPPLIED SHORTLY AS DESIRED BY IRFC. IN RESPECT OF PROPERTY REFERRED IN PARA NO. 2 OF TH E ABOVE REFERRED POSSESSION LETTER THE ASSESSEE IS HELD TO BE THE OW NER AND WAS ALSO HELD TO BE ENTITLED FOR DEPRECIATION EVEN FOR ASSESSMENT YE AR 2001-02. THEREFORE THERE CANNOT BE ANY DISPUTE ABOUT THE SPACE ALLOTTE D TO THE ASSESSEE DIRECTLY BY NBCC WHICH IS ALSO CONFIRMED BY ALLOTME NT LETTER DATED 28.4.1998 REFERRED IN THE POSSESSION LETTER AND IN RESPECT OF WHICH POSSESSION WAS HANDED OVER ON 29.3.2000. THE FORMA LITIES WHICH ARE PENDING ARE IN RESPECT OF TRANSFER DEED PENDING FOR EXECUTION BUT NEITHER THE NOTES ON ACCOUNT NOR THE AUDITORS REPORT REVEA L THAT THE POSSESSION WAS NEVER TAKEN. ON THE CONTRARY PROVISION WAS MAD E IN THE ACCOUNTS IN RESPECT OF DEPRECIATION ON THE BASIS OF PAYMENT MAD E AND POSSESSION TAKEN OVER. WE THEREFORE HOLD THAT THE ASSESSEE IS ENTITLED TO DEPRECIATION. MERELY BECAUSE REGISTRATION FORMALIT IES WERE PENDING CLAIM OF DEPRECIATION CANNOT BE DISALLOWED IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MYSORE MINERALS 239 I TR 775 WHICH HAS BEEN FOLLOWED BY THE HONBLE DELHI HIGH COURT IN TH E CASE OF CIT VS. BHARAT ALUMINIUM CO. LTD. 292 ITR 600. 20.2 SINCE THE ISSUE IS COVERED BY THE DECISION OF THE ITAT IN FAVOUR OF THE ASSESSEE RESPECTFULLY FOLLOWING THE PRECEDENT IT IS HELD THA T THE ASSESSEE IS ENTITLED FOR DEPRECIATION IN RESPECT OF OFFICE SPACE PURCHASED FROM NBCC. 21. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS DECIDED IN TERMS INDICATED ABOVE. 12 I. T. APPEAL NO. 2594 (DEL) OF 2005 . ORDER PRONOUNCED IN THE OPEN COURT TODAY ON : 31 ST JANUARY 2011. SD/- SD/-. [ R. P. TOLANI ] [ K. D. RA NJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 31 ST JANUARY 2011. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT 4. CIT (APPEALS) 5. DR ITAT NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR ITAT. 13 I. T. APPEAL NO. 2594 (DEL) OF 2005 .