Commissioner Of Income Tax, Udaipur v. M/S. Shree Rajasthan Syntex Ltd

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR :ORDER: D.B. Income Tax Appeal No.16/2012 Commissioner of Income Tax, Udaipur Vs. M/s. Shree Rajasthan Syntex Ltd. Date of Order: 12th December 2013 HON'BLE THE JUSTICE MR. DINESH MAHESHWARIHON'BLE MR. JUSTICE V.K. MATHUR Mr. K.K. Bissa, for the appellant. . BY THE COURT:[Per Dinesh Maheshwari, J.], By way of this appeal under Section 260A of the Income TaxAct, 1961 [‘the Act’], the Revenue seeks to question the order dated30.11.2011 passed by the Income Tax Appellate Tribunal, JodhpurBench, Jodhpur [‘ITAT’] in ITA Nos. 541/Jodh/2007 and406/Jodh/2007 relating to the Assessment Year 1999-2000 whereby,the ITAT has affirmed the part of the order dated 16.03.2007 passedby the Commissioner of Income Tax (Appeals), Udaipur [‘CIT(A)’]whereby, the CIT(A) had essentially allowed the appeal preferred bythe assessee and held, following the decisions in the case of thesame assessee for the Assessment Years 1996-97, 1997-98 and1998-99, that no ground was left for the Assessing Officer [‘the AO’]to re-open the assessment for the year under consideration i.e., theAssessment Year 1999-2000. Put in brief, the relevant background aspects of the mattercould be noticed in the following: The respondent-assessee hadleased out certain plant and machinery to M/s. Rajasthan TexchemLimited under different agreements, for specified period of time andat the stipulated monthly rent. The assessee-lessor has its registeredoffice at Udaipur, while the lessee company has its registered officeat Mumbai. The AO assessed the assessee for the AssessmentYears 1996-97, 1997-98 and 1998-99 so also for the AssessmentYear 2001-02, and in these assessment proceedings, the assesseeclaimed depreciation on the leased out capital assets under Section32 of the Act. In respect of three Assessment Years i.e., 1996-97,1997-98 and 1998-99, the assessee was allowed depreciation asclaimed. It so happened that the lessee, who was being assessed atMumbai, claimed revenue expenditure for the lease rent paid to thelessor, but the Assessing Officer at Mumbai, instead of allowing theexpenditure, allowed depreciation on the capital value of the plantand machinery. Upon this fact coming to the notice of the AO of thelessor, the proceedings under Section 147 were initiated by issuingnotice under Section148 of the Act. So far as the Assessment Year2001-02 was concerned, since the assessment at Mumbai hadalready been made by then, the AO of the respondent assessee didnot allow deduction for depreciation. All these orders werechallenged in appeals before the CIT (A), who upheld the additionwhile deciding the appeals relating to the Assessment Years 1996-97and 1997-98. However, on further appeals, the ITAT held theassessee entitled for depreciation on these assets, and the additionwas ordered to be deleted. The common order was passed by the 3ITAT in relation to the Assessment Years 1996-97 and 1997-98 on22.12.2003. The appeals relating to the Assessment Years 1998-99and 2001-2002 remained pending before the CIT(A) who, followingthe judgment of ITAT dated 22.12.2003, deleted the addition madeby the AO regarding depreciation. Aggrieved of this order of the CIT(A) dated 18.10.2005, the Revenue filed the appeals before the ITATwhich were dismissed by the common order dated 13.07.2006. Inthe above backdrop, 4 appeals relating to the respondent-assesseefor the Assessment Years 1996-97, 1997-98, 1998-99 and 2001-2002 came up before this Court and were considered on thefollowing questions in the common judgment dated 06.05.2008[reported in (2009) 313 ITR 231]:- 3ITAT in relation to the Assessment Years 1996-97 and 1997-98 on22.12.2003. The appeals relating to the Assessment Years 1998-99and 2001-2002 remained pending before the CIT(A) who, followingthe judgment of ITAT dated 22.12.2003, deleted the addition madeby the AO regarding depreciation. Aggrieved of this order of the CIT(A) dated 18.10.2005, the Revenue filed the appeals before the ITATwhich were dismissed by the common order dated 13.07.2006. Inthe above backdrop, 4 appeals relating to the respondent-assesseefor the Assessment Years 1996-97, 1997-98, 1998-99 and 2001-2002 came up before this Court and were considered on thefollowing questions in the common judgment dated 06.05.2008[reported in (2009) 313 ITR 231]:- “i) Whether, on the facts and circumstances ofthe case, the Income-tax Appellate Tribunal wasjustified in holding that the assumption of ju-risdiction under section 147/148 of the Income-tax Act,1961, is bad in law and accordingly inquashing the reassessment proceedings?ii) Whether on the facts and circumstances of thecase, the Income-tax Appellate Tribunal was jus-tified in holding that the assessee is entitledto get depreciation under section 32 on the as-sets claimed to be taken on lease, as owner ofthe assets?” After a thorough analysis of the facts of the case and the lawapplicable, this Court found unjustified the process of re-opening bythe AO on the basis of the assessments made in relation to thelessee at Mumbai; and the order of the ITAT was upheld, inter alia, with the following observations:- “…..Thus the net result which comes to is that simply be-cause after the Assessing Officer here had formed a particularopinion on a particular set of documents simply because the As-sessing Officer at Mumbai had formed a different opinion on thesame set of documents the action was sought to be initiated herefor re-assessment which, in our view, has rightly been found bythe learned Tribunal that it was a “borrowed satisfaction” underthe opinion of the Assessing Officer at Mumbai and has rightlycause after the Assessing Officer here had formed a particularopinion on a particular set of documents simply because the As-sessing Officer at Mumbai had formed a different opinion on thesame set of documents the action was sought to be initiated herefor re-assessment which, in our view, has rightly been found bythe learned Tribunal that it was a “borrowed satisfaction” underthe opinion of the Assessing Officer at Mumbai and has rightly been found to be not sufficient to confer power on the AssessingOfficer to initiate reassessment proceedings. Likewise, we may just take another hypothesis that if theAssessing Officer at Mumbai had not allowed depreciation al-lowance to the lessee and would have come to the conclusion onthe basis of these very lease deeds about the lessor being contin-uing as owner it is not in dispute that the reassessment proceed-ings would not have been initiated here. This obviously makes itclear that reassessment proceedings had been initiated only onaccount of the opinion arrived at by the Assessing Officer at Mum-bai. Thus, question No.1, as framed in three appeals isanswered in the affirmative, i.e., against the Revenue and infavour of the assessee.” In question No.2, this Court held the assessee entitled to claimdepreciation with reference to the decision of the Hon'ble SupremeCourt in the case of Shaan Finance: [1998] 231 ITR 308 whileobserving, inter alia, as under:- “We need not multiply all the cases as the best and near-est case we find is that of the hon'ble Supreme Court in the CIT v.Shaan Finance P. Ltd. [1998] 231 ITR 308 in paragraph 17 where-of it has been held by the hon'ble Supreme Court as under (page316): Thus, question No.1, as framed in three appeals isanswered in the affirmative, i.e., against the Revenue and infavour of the assessee.” In question No.2, this Court held the assessee entitled to claimdepreciation with reference to the decision of the Hon'ble SupremeCourt in the case of Shaan Finance: [1998] 231 ITR 308 whileobserving, inter alia, as under:- “We need not multiply all the cases as the best and near-est case we find is that of the hon'ble Supreme Court in the CIT v.Shaan Finance P. Ltd. [1998] 231 ITR 308 in paragraph 17 where-of it has been held by the hon'ble Supreme Court as under (page316): “17. Neither of these cases deals with an agreement ofhire of machinery in contradistinction to an agreement ofhire purchase. When the machinery is given on hire by theowner to the hirer on payment of hire charges, the incomederived by the owner is business income. The owner isalso entitled to depreciation on the machinery so hired out.The hirer, on the other hand, who pays hire charges, is en-titled to claim these as revenue expenditure. The hirer hasnot acquired any new asset. A transaction of hire is, there-fore, of bailment of the machinery. There is no extinguish-ment of any right of the owner in the machinery. There ismerely a license given to the hirer to use, for a temporaryperiod, the machinery so hired. In the case of DamodarValley Corporation v. State of Bihar [1961] 12 STC 102;AIR 1961 SC 440, this court examined the contract underwhich the machinery and equipment was supplied by theCorporation to the contractors. The question was whetherit was a mere contract of hiring or a sale or a hire pur-chase. The court said (page 445): ‘It is well-settled that amere contract of hiring, without more, is a species of thecontract of hiring, without more, it a species of the contractof bailment, which does not create a title in the bailee, butthe law of hire purchase has undergone considerable de-velopment during the last half a century or more and hasintroduced a number of variations, thus leading to cate-gories, and it becomes a question of some nicety as towhich category a particular contract between the partiescomes under.’ We need not dwell on the niceties of a hire purchase contract since we are concerned only with con-tracts of hire simpliciter.” With this, it is required to be considered that the basic dis-tinguishing feature between the lease being finance lease or oper-ating lease would be that in case of finance lease, at some pointof time, the ownership transfers to the lessee, or the lessee hasthe option to purchase the hired assets in consideration of a tokenprice. Obviously, in that event, the lease rent or hire chargescalled by whatever name with passage of time partake of thecharacter of the price of the asset in possession of the lessee orhirer under the finance lease agreement as distinct from the leasein question where there is a very specific stipulation in clause 8that on termination of the lease the leased plant and machineryare to be returned to the lessor in the condition as they were tak-en except normal wear and tear….” This Court proceeded to examine Clause 8 of the lease deedand found the controversy concluded by the judgment of the Hon'bleSupreme Court in Shaan Finance’s case (supra). Thus, questionNo.2 was also answered in favour of the assessee. It is not indispute that the petition for special leave to appeal against thejudgment aforesaid was dismissed by the Hon’ble Supreme Court on30.03.2009. This Court proceeded to examine Clause 8 of the lease deedand found the controversy concluded by the judgment of the Hon'bleSupreme Court in Shaan Finance’s case (supra). Thus, questionNo.2 was also answered in favour of the assessee. It is not indispute that the petition for special leave to appeal against thejudgment aforesaid was dismissed by the Hon’ble Supreme Court on30.03.2009. In relation to the Assessment Year relevant for the presentappeal i.e., 1999-2000, the return of income was filed by therespondent-assessee on 23.12.1999, declaring a loss ofRs.31,17,294/-, which was processed on 03.04.2001 under Section143(1) of the Act. Subsequently, the assessment was re-opened byissuing notice under Section 148. It was contended before the AOthat the notice issued under section 148 was bad in law. However,AO was not satisfied with the reply; and proceeded to disallow thedepreciation claimed on the leased assets and the excise duty wasalso included in the closing stock. In appeal, it was submitted beforethe CIT (A) that on identical facts, the assessments for AssessmentYears 1996-97 and 1997-98 were also re-opened but the ITAT had quashed the re-opening of the assessment for both the years. It wasalso submitted that the proceedings under Section 148 for theAssessment Year 1998-99 were initiated but same had beenquashed by the CIT (A). The CIT(A), after considering thesubmissions and perusing the material on record, observed that thepoint on which re-opening of the assessment was made, had alreadybeen decided in favour of the assessee and hence, there was noground left for re-opening the assessment. Accordingly, the CIT (A)cancelled the re-opening of the assessment while holding the re-assessment void ab initio. Without prejudice to the foregoing, theCIT (A) also proceeded to decide the issues on merit and certainadditions were sustained whereas certain additions were deleted. In the appeals preferred by the assessee as also the Revenue,the ITAT took up the question of validity of re-opening of theassessment and, following the decision in the assessee’s case, asreferred hereinabove [313 ITR 231], found justified the order of CIT (A) in quashing the re-assessment proceedings. The ITAT said,- “10.After considering the orders of the Assessing Officer andld. CIT (A) and the contention of both the parties, we find thatissue squarely covered by the order of Hon'ble Rajasthan HighCourt for assessment years 1996-97 and 97-98 reported in 217CTR 209, copy of the same is placed on record. The Hon'bleHigh Court has concluded that reopening of the assessment wasinvalid. Since the facts are identical for the year underconsideration as on the same reasoning the assessment wasreopened for A.Y. 1999-2000, therefore, respectfully following thedecision of Hon'ble Rajasthan High Court in case of assesseeitself, we hold that ld. CIT(A) was justified in quashing theassessment. Accordingly the order of ld. CIT(A) is confirmed.” ld. CIT (A) and the contention of both the parties, we find thatissue squarely covered by the order of Hon'ble Rajasthan HighCourt for assessment years 1996-97 and 97-98 reported in 217CTR 209, copy of the same is placed on record. The Hon'bleHigh Court has concluded that reopening of the assessment wasinvalid. Since the facts are identical for the year underconsideration as on the same reasoning the assessment wasreopened for A.Y. 1999-2000, therefore, respectfully following thedecision of Hon'ble Rajasthan High Court in case of assesseeitself, we hold that ld. CIT(A) was justified in quashing theassessment. Accordingly the order of ld. CIT(A) is confirmed.” In view of the above, the ITAT found no need to decide the remaining grounds of appeal of the Revenue or of the assessee and disposed of the appeals as such. Seeking to question the order so passed by the ITAT, it is In view of the above, the ITAT found no need to decide the remaining grounds of appeal of the Revenue or of the assessee and disposed of the appeals as such. Seeking to question the order so passed by the ITAT, it is essentially contended on behalf of the appellants that the legal issueinvolved in the appeal before the ITAT was not exactly identical to thereferred decision in relation to the respondent-assessee for theAssessment Years 1996-97 to 1998-99 inasmuch as, for the saidyears, the assessment had been completed under Section 143(3) ofthe Act whereas for the relevant Assessment Year 1999-2000, thereturn was only processed under Section 143(1) of the Act. It is,therefore, suggested that a question of law does arise in the matteras to whether there was no question of forming an opinion by the AOat the stage of processing the return under Section 143(1) of the Act,particularly when no order had been passed under Section 143(3) ofthe Act. Having heard the learned counsel for the appellant and havingperused the material placed on record, we are unable to find anymerit in this appeal. The facts stated in the orders impugned make it clear thatreturn of income for the Assessment Year 1999-2000 was filed on23.12.1999 and the same was processed on 03.04.2001 underSection 143(1) of the Act. Subsequently, the case was re-opened byissuing notice on 17.05.2005 under Section 148 of the Act, whichwas served on the assessee on 19.05.2005. Even in the impugnedorder dated 31.08.2006, the AO essentially proceeded to rely uponhis own orders passed in relation to the respondent-assessee for theAssessment Years 1996-97 and 1997-98. The AO also observedthat the order passed by the ITAT for those years had not beenaccepted by the Department and the appeal under Section 260A waspending before the Rajasthan High Court. As noticed, the said cpgoyal/- 8 appeal, which was pending on the date of passing of the order by theAO, was ultimately decided by this Court on 06.05.2008 and both thematerial questions, regarding validity of the re-assessmentproceedings as also regarding entitlement of the assessee to claimdepreciation, were decided against the Revenue and in favour of theassessee. The decision so rendered by this Court squarely applies,on all the material aspects, to the present case relating to theAssessment Year 1999-2000. In the given set of facts and circumstances, we find the CIT(A)perfectly justified in not approving the re-assessment proceedings forthe Assessment Year 1999-2000 and the ITAT also perfectly justifiedin dismissing the baseless appeal filed by the Revenue. In view of the above, this appeal, being totally bereft ofsubstance, stands dismissed. [V.K. MATHUR], J. , J.