Principal Commissioner Of Income Tax-3, Kolkata v. M/S. Eih Ltd

Form No.(J2) ORDER SHEET IN THE HIGH COURT AT CALCUTTACivil Appellate JurisdictionORIGINAL SIDE Present : The Hon'ble JUSTICE T. S. SIVAGNANAM And The Hon’ble JUSTICE HIRANMAY BHATTACHARYYA ITAT/38/2020 PRINCIPAL COMMISSIONER OF INCOME TAX-3, KOLKATAVSM/S. EIH LTD. Heard on : 17.01.2022 Judgment on : 17.01.2022 Appearance:Mr. S.N. Dutta,Mr. Soumen Bhattacharjee, Advs.…for the appellant. Mr. J.P. Khaitan, Sr. Adv.,Mr.Soham Sen, Adv.,for the respondent. T.S. SIVAGNANAMM J. : This appeal of the revenue filed under Section 260A of the Income Tax Act (the ‘Act’ in brevity) isdirected against the composite order dated 5[th] April, 2017 passedby the Income Tax Appellate Tribunal, A-Bench, Kolkata (the ‘Tribunal’) in ITA No.191/Kol/2013 and ITA No.352/Kol/2013 for theassessment year 2009-10.The revenue has raised the following substantialquestions of law for consideration:“i)Whether on the facts and in the circumstances ofthe case, the Learned Tribunal erred in law in deleting thedisallowance of Rs.1,31,54,252 being 10% of the expenditureincurred on running, repairs and maintenance and depreciationclaimed on two aircrafts without considering that theaircrafts were also used for personal purposes of thedirectors. ii)Whether on the facts and in the circumstances ofthe case, the Learned Tribunal erred in law in deleting thedisallowance under section 40(a)(ia) of Rs.11,32,19,470 paidas commission and sitting fees to directors of the companywithout deducting tax at source under section 194J of IncomeTax Act. iii) Whether on the facts and in the circumstances ofthe case, the Learned Tribunal erred in law in deciding theappeal in favour of the assessee whereas the assessee hadclaimed this amount of Rs.69,50,200/- as deduction on accountof write off out of the amounts advanced towards acquisitionof equity shares in a joint venture which is capital innature and not revenue in nature. iv)Whether on the facts and in the circumstances ofthe case, the Learned Tribunal erred in law allowing theappeal of the assessee by considering the principle paymentof lease rental of Rs.3,83,59,225/- as a allowable expensewhen the assessee is a lessee in a financial lease agreementwith the lessor and all the risk and responsibility have tobe transferred to the assessee. v)Whether on the facts and in the circumstances ofthe case, the Learned Tribunal erred in law in holding thatin a financial lease when substantial risk and responsibilityhave been transferred to the assessee the ownership also gettransferred and the payment of lease rental by the lessee tothe lessor is a capital expenditure rather than revenueexpenditure. vi)Whether on the facts and in the circumstances ofthe case, the Learned Tribunal erred in law in deleting thedisallowance Rs.4,09,85,275/-, Rs.12,14,760/- andRs.1,48,225/- under section 40(a)(i) on account ofadvertisement consultancy fees and advertisement to fiveparties in Sweden respectively by ignoring the fact that suchexpenses are subject to tax in India as FTS under section9(1)(vii) of the Act. vii) Whether on the facts and in the circumstances ofthe case, the Learned Tribunal erred in law in deleting the disallowance of Rs.11,72,056/- under section 40(a)(i) onaccount of inspection fees by ignoring the fact that suchexpenses are subject to tax in India under explanation tosection 9(1)(vii) of the Act. We have heard Mr. S.N. Dutta, learned standing counselassisted by Mr. Soumen Bhattacharjee, learned Counsel appearingfor the appellant/revenue and Mr. J.P. Khaitan, learned SeniorCounsel, assisted by Mr. Soham Sen, learned Counsel appearing forthe respondent/assessee. vii) Whether on the facts and in the circumstances ofthe case, the Learned Tribunal erred in law in deleting the disallowance of Rs.11,72,056/- under section 40(a)(i) onaccount of inspection fees by ignoring the fact that suchexpenses are subject to tax in India under explanation tosection 9(1)(vii) of the Act. We have heard Mr. S.N. Dutta, learned standing counselassisted by Mr. Soumen Bhattacharjee, learned Counsel appearingfor the appellant/revenue and Mr. J.P. Khaitan, learned SeniorCounsel, assisted by Mr. Soham Sen, learned Counsel appearing forthe respondent/assessee. We need not labour much to decide some of the substantialquestions of law in view of the decision rendered in theassessee’s own case by this Court for the assessment year 2008-09in ITAT No.34 of 2020 dated 16[th] December, 2021. It is not disputedby the revenue that the said decision which was decided againstthe revenue would squarely cover the substantial questions of lawno.(i), (ii), (vi) and (vii) as suggested before us in thisappeal. Thus, following the decision in ITAT No.34 of 2020 dated16[th] December, 2021 the substantial questions of law no.(i), (ii),(vi) and (vii) are answered against the appellant/revenue. So far as the substantial question of law no.(iii)isconcerned, similar question was raised by the revenue in ITATNo.53 of 2017 for the assessment year 2006-07 which was dismissedand the said substantial question of law was answered against the revenue. Thus, following the said decision, the substantialquestion of law no.(iii) is answered against the revenue.So far as the substantial questions of law no.(iv) and(v) are concerned, the same pertain to addition on account ofprincipal repayment of lease rental under financial lease. Theassessing officer held that the principal repayment of leaserental is nothing but payment of cost of purchase in instalmentand has to be treated as capital expenditure and added the saidamount to the income of the assessee. The assessee preferred anappeal to the Commissioner of Income Tax (Appeals) [CIT(A)] whoheld that the lease agreement in a financial lease as it had beentreated as such in the books following the Accounting Standards –19 and upheld the finding of the assessing officer. The assesseemade an alternate submission stating that if it is not held to beoperating lease, depreciation has to be granted. This alternatesubmission was accepted by the [CIT(A)] and to that extent reliefwas granted to the assessee. The assessee was in appeal before theTribunal. The Tribunal took note of the fact that in assessee’scase for the assessment year 2011-12 relief was granted and alsothe order passed by the Tribunal for the assessment year 2008-09.Though it may be true that an appeal has been preferred by therevenue for the assessment year 2008-09, we note that the reliefgranted to the assessee for the assessment year 2011-12 by theDispute Resolution Panel (DRP) has remained unassailed. Therefore, we are inclined to confirm the finding of the Tribunal which inour opinion is not contrary to facts. However, since the saidquestion has been admitted in ITAT No.121 of 2017 while affirmingthe finding of the Tribunal in so far as the substantial questionsno.(iv) and (v), we leave the substantial questions of law open.In the result, the substantial questions of law no.(i), (ii), (vi)and (vii) are answered against the revenue following the decisionof this Court in ITAT No.34 of 2020 dated 16[th] December, 2021 forthe assessment year 2008-09. The substantial question of law no.(iii) is decidedagainst the revenue following the decision of this Court in ITATNo.53 of 2017 dated 23[rd] July, 2018 in the assessee’s own case forthe assessment year 2006-07. The substantial questions of lawno.(iv) and (v) are left open. However, the finding recorded bythe Tribunal and the relief granted to assessee stands confirmed.In the light of the above, the appeal (ITAT 38/2020) failsand is hereby dismissed. (T. S. SIVAGNANAM, J.) I agree. (HIRANMAY BHATTACHARYYA, J.)