Vildirect: IncomeTax-caselaws-1993-VIL-182-ITAT-DEL

1993-VIL-182-ITAT-DEL

Equivalent Citation: ITD 049, 317,

Income Tax Appellate Tribunal DELHI

ITA No. 8105/Del/1992

Date: 22.10.1993

GOYAL GASES (P.) LTD.

DEPUTY COMMISSIONER OF INCOME TAX.

BENCH

Member(s) : S. S. MEHRA., N. S. CHOPRA.

JUDGMENT

Per N. S. Chopra, AM --- The assessee is in appeal against order dated16th September, 1992 of the learned CIT(Appeals)-V,New Delhi. In all 15 grounds of appeal have been taken. First two grounds of appeal are relating to the issue as to whether the revised statement of income furnished by the assessee on24th March, 1992 constituted a revised return. We find no merit in the submissions made by the learned representative for the assessee that the revised computation constituted revised return. The revised return must be on the prescribed form and must be properly signed and verified. Income computation sheet cannot be a substitute for the prescribed return [see Gopaldas Parshottamdas v. CIT [1941] 9 ITR 130 (All.) and Waman Padmanabh Dande v. CIT [1952] 22 ITR 339 (Nag.)]. We, therefore, dismiss these two grounds of appeal.

2. Grounds of appeal Nos. 3, 4 & 5 relate to the disallowance of assessee's claim for grant of weighted depreciation on trucks for the entire accounting period of 27 months. The relevant facts are that the assessee is a private limited company. It was incorporated in 1973 and commenced its business of cylinders hiring in 1974 with calendar year as its accounting period. This was followed till31-12-1986relevant to the assessment year 1987-88. For the assessment year 1988-89 on an application, the assessee was allowed extension of the accounting period and closed its books on30th June, 1988. In view of amendment to section 3 of the Income-tax Act, the assessee was, however, obliged to close its books of account on31st March, 1989instead. In other words, while there was no return of income for assessment year 1988-89, the return of income for the assessment year 1989-90 was for a period of 27 months i.e., 1-1-1987 to 30th June, 1988 and 1-7-1988 to 31st March, 1989. During the period involved the assessee added a new activity to its business w.e.f.1st March, 1988i.e. leasing of trucks (later on computers also). The assessee claimed weighted depreciation on trucks for the entire period of 27 months in accordance with Para 5 of Schedule X of the Income-tax Act. The assessee's claim was, however, rejected by the Assessing Officer on the ground that leasing of trucks was a new business having commenced on1-3-1988and, therefore, represented a new source of income and income from this new source was for a period of 13 months ending on31st March, 1989. The Assessing Officer also took note of assessee's letter dated4-2-1992to the effect that leasing activity was undertaken for the first time and no such activity was done in the preceding years. He. thus, allowed weighted deduction only for 13 months. The assessee was unsuccessful before the learned CIT(Appeals).

3. The learned authorised representative for the assessee submitted that the authorities below mis-read and mis-interpreted the facts, thus reaching erroneous conclusion. He argued that the assessee is admittedly engaged in cylinders hiring business since 1974 and has been returning income therefrom regularly. Shri Aggarwal referred to page 188 of his paper book showing income returned by the assessee as rent on cylinders for the preceding as also proceeding assessment year. He argued that leasing of trucks undertaken by the assessee during the relevant previous year was nothing but an extension of its present business activities of hiring of its business assets. The learned authorised representative, therefore, argued that both the businesses constituted one and same business. He placed reliance on Supreme Court judgment in the case of B.R. Ltd. v. V.P. Gupta, CIT [1970] 113 ITR 647 and submitted that the assessee was entitled to weighted depreciation for the entire period of 27 months. Even otherwise, according to Shri Aggarwal, the assessee admittedly leased out its trucks w.e.f.1-3-1988which fell in the accounting period ending on30th June, 1988and the assessee is entitled to full depreciation thereon for the entire period. Shri Aggarwal further pointed out that the assessee was again entitled to depreciation on the trucks for the accounting period ending on31st March, 1989since income from both the periods, is returned together.

4. The learned Departmental Representative supported the order of the Assessing Officer and also referred to the Circular of CBDT as reported in 182 ITR 10 and 11 (Statute). According to the learned Departmental Representative both the businesses are not same business and the assessee was also doing the business of leasing separately as is apparent from its own books of account.

5. Rival submissions heard and relevant records seen. We have carefully considered the submissions made by both the parties. The assessee admittedly is already in the business of hiring of its business assets since 1974 (cylinders). During the relevant previous year it acquired some more business assets i.e. trucks and gave the same again on rent under agreement of lease with various parties: The additional activity undertaken by the assessee is nothing but extension of its existing business activity of letting out of its business assets on rent though in another firm; which is leasing as against hiring of cylinders. Undoubtedly there is common management and common control of the business involving interlocking and interlacing of funds. As held by the Hon'ble Supreme Court in the case of B.R. Ltd. the decisive test is unity of control and not nature of the two lines of the business. Undeniably there is common management, common business organisation, common administration, common fund and a common place of business. Applying the test of "same business" as laid down by the Hon'ble Supreme Court in the cases of B.R. Ltd.; CIT v. Prithvi Insurance Co. Ltd. [1967] 63 ITR 632, 638 and Produce Exchange Corporation Ltd. v. CIT [1970] 77 ITR 739, it is to be held that both the businesses i.e. hiring of cylinders and leasing of trucks constitute one and the same business in the hands of the assessee and therefore the assessee is entitled to claim weighted depreciation on trucks for the entire period of 27 months. Viewed from another angle, the assessee's claim is also allowable in accordance with the provisions of para 5 Schedule X of the Income-tax Act. We, therefore, direct that weighted depreciation on trucks be allowed as claimed. These grounds of appeal are, therefore, allowed.

6. Ground Nos. 6, 7, 8 & 9 --- The assessee claimed depreciation on computers purchased from M/s Pertech Computers Ltd. E-46/10, Okhla Industrial Area, New Delhi (PCL for short) in March 1989 and leased out the same to M/s ALTOS India Ltd. D-60, Okhla Industrial Estate (ALTOS for short) under an agreement dated 18th March, 1989. The Assessing Officer noticed certain curious features in the claim of the assessee with regard to purchase of computers from PCL as also its claim of leasing out of the same to ALTOS. The Assessing Officer noted that the assessee had claimed to have purchased 15 computers from PCL, for a sum of Rs. 50,26,200 on15th March, 1989. He also noted that the computers involved were claimed as manufactured by ALTOS which sold the computers to PCL. The Assessing Officer noted that the Chairman of PCL Shri Dadan Bhal was also a Director of ALTOS. He also noticed that though the assessee claimed to have taken delivery of the computers from PCL, there was no such evidence and on the contrary the delivery of the computers was taken by ALTOS itself from PCL, yet the computers continued to remain with PCL who, on subsequent enquiry informed the Assessing Officer that the same were sent to their Calcutta office. The Assessing Officer made enquiries atCalcuttaoffice and found no such computers existing at the premises of PCL as claimed. He further noted that on enquiry and verification distinct identification numbers of computers as given in the invoice as also per schedule to the agreement between the assessee and ALTOS simply did not physically exist. Still further he made enquiries from PCL as to how and when the computers were sent toCalcutta. PCL in turn sent the Assessing Officer the photostat copies of six air consignment notes with its letter dated20th February, 1992. On going through these notes the Assessing Officer found the same irrelvant as also noted discrepancy in the date of despatch which was15th March, 1989in one note when the agreement with ALTOS was signed only on18th March, 1989. The Assessing Officer also recorded statements of Shri Raj Singh of PCL and Shri Tapas Majumdar of ALTOS on11th March, 1992during the course of survey under section 133A of the Act. The Assessing Officer felt that the assessee was coming out with different versions with regard to whereabouts of the computers when on the one hand the same were claimed to be leased out to ALTOS, as per agreed terms, the computers were to remain with ALTOS, the same stood sub-leased by ALTOS to PCL without the knowledge or the consent of the assessee. He further noted violation of the terms of agreement between the assessee and ALTOS regarding insurance of computers. The Assessing Officer recorded the statement of Shri Suresh Goel, Director of the assessee-company, on 18th March, 1992 and again on 30th March, 1992, when he was, according to the Assessing Officer, unable to satisfactorily explain the whereabouts of the computers even though the agreement had practically come to an end i.e. March 1992 itself when Shri Goel informed the Assessing Officer that he was making further enquiries from ALTOS with regard to whereabouts of computers. The Assessing Officer also noted that description of computers as given in the schedule to agreement as also in the invoice not only remained uncorroborated with the help of any independent evidence but on the other hand enquiries revealed that such computers did not exist. He confronted the assessee with various documents and copies of statements of Shri Raj Singh and Tapas Majumdar on26th March, 1992and on30th March, 1992noted that the assessee was unable to satisfactorily explain its stand and had also submitted that PCL and ALTOS would not participate in proceedings. The Assessing Officer also took note of letter received from another Assessing Officer relating to another assessee M/s Avanti Overseas Pvt. Ltd. wherein he had conveyed that M/s Avanti Overseas Pvt. Ltd had also entered into similar agreements with PCL/ALTOS and PCL had confirmed that security deposit is to be treated as a residual price of the computers on completion of the lease agreement and the deposit is non-refundable and interest-free. He also took note of the broker and finance consultant who carried out such arrangement between M/s Avanti Overseas and PCL/ALTOS namely M/s Anil Bhatia & Associates. He gave copies of these documents to Shri Goel, Director of the company, on30th March, 1992and found no satisfactory reply coming from Shri Goel. He thus held that the assessee's claim was devoid of merit. He also held that the agreement with ALTOS was sham when the computers involved simply did not exist which, according to the Assessing Officer, meant that the same were not even manufactured and therefore there was no ownership of computers by the assessee. He, therefore, concluded that the money paid by the assessee was only towards financing recoverable in 36 monthly instalments @ Rs. 92,845 p.m. in all Rs. 33,42,420. He rejected the assessee's contention that it was a normal business transaction when the assessee had duly paid the money for computers at Rs. 50,26,200 and the amount collected by way of security i.e. Rs. 25,12,100 was properly disclosed in the balance-sheet and the assessee in fact had received rental of Rs. 92,845 for the month of March 1989 in terms of the agreement dated 18th March, 1989.

7. The matter was taken up in appeal before the learned CIT(Appeals) who noted that PCL had given different versions with regard to payments made by the assessee and the amount of security transferred by PCL to the assessee under the lease agreement with M/s ALTOS, in its letter dated 27th March, 1992 and 30th March, 1992. He also made enquiries from ALTOS and on the basis of a reply dated 7-9-1992 from ALTOS found altogether a different version with regard to source of security given to the assessee who had claimed to have received the same from ALTOS while ALTOS in their letter dated 7-9-1992 intimated that it has been paid by PCL [reference to paras 5.6 to 5.9 of the order of the learned CIT (Appeals)]. Agreeing with the findings of the learned assessing authority, the learned first appellate authority rejected the grounds of appeals taken by the assessee.

8.The assessee is in appeal. The learned authorised representative for the assessee took us through his paper book in support of his contention that the transaction involved is genuine and the purchases of computers and leasing thereof is a normal business transaction involving payment of money for purchase of computers taken delivery thereof and leasing of the same to M/s ALTOS under an agreement dated 18th March, 1989 as also receiving rental of Rs. 92,845 p.m. in terms of the said agreement. He argued that the authorities below have acted entirely in an unjudicious manner by discarding the evidence adduced before them by the assessee as also by collecting material behind the back of the assessee without confronting the same. Shri Aggarwal pointed out that the letter received from another Assessing Officer assessing M/s Avanti Overseas Pvt. Ltd. and relied upon by the Assessing Officer in support of his findings was never confronted to the assessee. Shri Aggrarwal further pointed out that the CIT(Appeals) also collected information from M/s ALTOS in their letter dated7-9-1992which was used against the assessee by the learned CIT(Appeals) without confronting the assessee. In support of his submissions that computers in question were purchased and used for the purpose of assessee's business, the learned authorised representative invited our attention to proforma invoice dated 15th March, agreement dated 18th March, letter from M/s ALTOS dated 13th March, 1989 statements of Shri Raj Singh, Shri Tapas Majumdar, statement of Shri Suresh Goel, information furnished by PCL in its letter dated 25th March, 1989 with regard to location of computers. The learned authorised representative submitted that on the basis of evidence adduced the authorities below erred in disallowing the assessee's claim.

9. The learned Departmental Representative also argued his case at length and took us through the order-sheet entries as also information collected in support of his submissions that assessee had failed to establish that it was the owner of the computers, a condition necessary for grant of claim for depreciation. The learned Departmental Representative also referred to the statement dated 30th March, 1992 of Shri Suresh Goel recorded by the Assessing Officer and pointed out that even till that date the alleged owner i.e. the assessee did not know the whereabouts of the computers when in terms of the agreement dated 18-3-1989 the computers were supposed to be in control and management of the assessee. He pointed out that whereas the agreement dated18th March, 1989had practically come to an end yet the assessee did not know the whereabouts of the computers. He also invited our attention to the manner in which the whole transaction was transacted as also the terms of agreement between the assessee and M/s ALTOS and pointed out that whereas there has been glaring violation on the part of ALTOS of the agreed terms, the assessee has shown total indifference for obvious reason which goes to establish that this is an agreement which was never intended to be enforced by either party, the whole transaction being sham. The learned Departmental Representative submitted that on the facts and circumstances the assessee has failed to establish that the computers involved were ever manufactured much less purchased.

10. We have heard both the parties at length and have also perused the relevant records very carefully. We are entirely agreed with the learned counsel for the assessee that the reliance placed by the learned assessing authority on the information received from another Assessing Officer i.e. Dy. Commissioner of Income-tax, Special Range-15, New Delhi in the case of M/s Avanti Overseas Pvt. Ltd., is not relevant, more so when no opportunity was given to the assessee and therefore deserves to be excluded. We also agree with the submission of the learned counsel for the assessee that the learned first appellate authority was not justified in obtaining information from ALTOS as furnished in their letter dated7-9-1992and utilising the same against the assessee and that too without affording necessary opportunity. We, therefore, exclude all this evidence from our consideration while deciding this issue.

11. In order to successfully claim depreciation, burden lay on the assessee to prove "ownership" and "user" of the assets i.e. computers. So far the question of ownership is concerned, it is necessary to look into the circumstances obtaining in this case, namely, that ALTOS the manufacturer of the computers is claimed to have sold the computers to PCL, its selling agent, and PCL in its turn sold the same to the assessee and again the assessee entered into contract of leasing with M/s ALTOS. It is also relevant to notice that according to the assessee the computers were never taken actual delivery of and they went back from PCL to ALTOS. The Assessing Officer on enquiry was informed that, according to ALTOS, the computers were sub-leased by it to PCL and according to PCL they were sent toCalcuttaand again sub-leased to various parties atCalcutta. Thus, the entire transaction is so inter-woven that it gives a colour of mere paper transaction without any actual transaction of sale. In other words, there is no material on record to establish that the title in computers ever actually passed to the assessee. The assessee had disowned the knowledge of the alleged sub-lease by ALTOS to PCL and further sub-lease by PCL to variousCalcuttaparties. The assessee since did not receive delivery of the computers from PCL and allowed it to deliver by PCL to ALTOS, there was implied authority of the assessee with PCL and therefore the assessee cannot get rid of the conduct of his own agent, namely, PCL in dealing with those computers, contrary to the claim of ownership thereof by the assessee. The entire gamut of facts makes it clear that there was no actual delivery of computers to the assessee and the assessee also never cared to know the whereabouts of those computers. The conduct of the assessee was such as if it had nothing to do with the computers except to realise the amount of Rs. 25,13,100 from ALTOS which, according to the agreement, the assessee is getting in monthly instalments from ALTOS in all aggregating to Rs. 33,42,420 @ Rs. 92,845 p.m. The interest of the assessee in this connection is fully secured under the agreement. The agreement of lease of the computers between the assessee and ALTOS does not inspire truthfulness for the obvious reason that the manufacturer of computers would not take lease of the same in normal course of its business. The story of selling of computers by ALTOS to PCL and in turn by PCL to the assessee and again giving back the same computers to ALTOS under the colour of lease is nothing beyond that the goods have reached the place of origination throwing great suspicion on the origination itself.

12. While considering the entire material on record we cannot lose sight of the fact that there is a common Director in ALTOS and PCL namely Dadan Bhai and as such it was very much convenient for the assessee to deal in the name of two companies with a common man. We fail to understand why a manufacturing concern would take its own manufactured computers on lease and would pay a heavy hiring charges totalling to Rs. 33,42,420 while the computers are valued at a little over Rupees fifty lakhs and that too without getting back the title to the said computers. The learned Departmental Representative very rightly pointed out that under these facts and circumstances very heavy burden lay on the assessee to establish the reality of the transaction. This has not been done by the assessee. We, therefore, hold that the assessee under the circumstances cannot be said to have satisfied the conditions of ownership of the computers and it has been rightly denied the claim of depreciation thereon. However, in order to be just we would like to observe that the amount of hire charges received by the assessee from ALTOS should be treated as instalment of loan plus interest. The interest portion thereof should only be assessed in the hands of the assessee. This also disposes of ground of appeal No. 10.

13. Ground No. 11 is that the CIT(Appeals) erred in sustaining the disallowance of Rs. 42,990 on account of travelling expenses by Shri Kaushal Jain. Shri Kaushal Jain is an employee of the assessee-company who was sent toChina. On his trip an expenditure of Rs. 42,990 was claimed by the assessee as business expenditure. This was disallowed as capital gain.

14. We have heard both the parties on the issue and have also gone through the relevant records. We do not find any material on record to justify the finding as given by the Assessing Officer that the amount involved is capital. The fact that Shri Kaushal Jain is an employee cannot be lost sight of. There is after tour report of Shri Kaushal Jain indicating that the purpose of his visit was extension of business. In the circumstances we allow the claim as revenue. This ground of appeal is, accordingly, allowed.

15. The next grievance of the assessee is against the disallowance of bad debt of Rs. 5,21,482. The assessee had advanced a sum of Rs. 10 lakhs on 7-8-1981 through four cheques to M/s Bharatpur Industries, Canal Road, Kausi Kalan district Mathura, a partnership constituted of Shri Rattan Lal, the father of the Managing Director of the assessee-company Shri Suresh Goel and his wife Smt. Meera Goel. The assessee received interest on the amount advanced till30th June, 1982and offered the same for tax. Thereafter the assessee stopped receiving interest though it credited the interest amount in its books of account and suffered tax thereon. Since it failed to recover interest from M/s Bharatpur Industries after30th June, 1982it filed a civil suit in the court of Civil Judge,Mathurain 1985 for recovery of principal of Rs. 10 lakhs and interest of Rs. 5,22,000. During the pendency of the suit Shri Rattan Lal partner of Bharatpur Industries died in November 1988. The assessee on a consideration of all relevant facts and circumstances treated the amount of Rs. 5,21,482 as bad debt and wrote off the same in its books of account for the period ending31st March, 1989. The claim of bad debt of the assessee was disallowed by the Assessing Officer and concurrently by the CIT(Appeals) with the finding that it was a made-up transaction aimed at diverting assessee's income looking to the close relationship between the Managing Director of the assessee-company and the partners of the above firm. The Assessing Officer also took note of the subsequent compromise arrived at between the assessee and the heirs of Shri Rattan Lal for giving up amount of interest.

16. Shri Aggarwal, the learned authorised representative argued that authorities below mis-read and misinterpreted the facts. He argued that it is not in dispute that the assessee had been receiving interest till30th June, 1982and had been offering the same as its income. He argued that it is also on record that thereafter even though the interest was shown as accrued nothing was received and the assessee notwithstanding the close relationship between the Managing Director and the partners of the firm, had to take recourse to legal proceedings in theCivil Court. Shri Aggarwal submitted that whatever hopes the assessee had to receive the amount of interest vanished when Shri Rattan Lal died in November 1988 and the assessee like a prudent businessman taking into account the reality of situation, wrote off the same as bad debt. Shri Aggarwal has placed reliance on Jethabhai Hirji & Jethabhai Ramdas v. CIT [1979] 120 ITR 792 (Bom.). The learned Departmental Representative supported the order of the Assessing Officer as also of the learned CIT(Appeals).

17. We have heard both the parties and have also gone through the relevant records. There is no dispute of fact that the assessee had advanced Rs. 10 lakhs on interest to M/s Bharatpur Industries, a partnership constituted of close relations of the Managing Director of the assessee-company. That the assessee had received interest on the amount advanced regularly till30th June, 1982and suffered tax thereon is also not in dispute. It is also not in dispute that the assessee reflected interest on the amount advanced in its books of account on accrual basis subsequent to30th June, 1982, even though he did not receive anything. Notwithstanding the co-relationship between the Managing Director of the assessee-company and partners of the firm the assessee had to institute legal proceedings against the said firm. There is no denying the fact that both the assessee and the said firm have independent identity and the fact that the same are closely related is of no consequence. The assessee even during the pendency of the suit failed to recover its principal as also interest and the matter become worse when the Managing Director of the said firm Shri Rattan Lal died in November 1988. Therefore, the assessee was left with no other alternative than writing off the amount of interest as bad debt. The assessee made an objective assessment of the situation on the basis of facts and circumstances as prevailing during the relevant previous year. All that was required was an honest judgment on the part of the assessee at the time when it wrote off the amount. There is no manner of doubt that under given facts and circumstances the assessee had no option but to write off the amount as bad debt. We, therefore, allow the assessee's claim.

18. The last grievance of the assessee is regarding charging of interest under sections 234A and 234B. The assessee filed its return late. Therefore, the provisions of section 234A stand attracted and in our view interest was leviable. We, however, direct recomputation thereof in the light of our order.

19. Interest under section 234B is chargeable for default in payment of advance tax and is also referable to the assessed tax. The Assessing officer is, therefore, directed to recompute the interest after giving effect to this appellate order.

20. In the result, appeal is partly allowed as indicated above.

DISCLAIMER: Though all efforts have been made to reproduce the order accurately and correctly however the access, usage and circulation is subject to the condition that VATinfoline Multimedia is not responsible/liable for any loss or damage caused to anyone due to any mistake/error/omissions.