Full Judgment
2. The order of the assessing officer may be restored and the order of the CIT (Appeals) may be set aside with respect to the above mentioned grounds." We have heard the rival submissions and carefully perused the orders of the authorities below and the documents placed on record.
With respect to ground Nos. 1 (a) and (b) it is noticed from the record that the assessing officer has made an addition of Rs. 50,65,200 on account of lease rental received on Steel Cops and of Rs. 31,12,525 on account of lease rental received on aircraft. In this regard the learned counsel for the assessee has submitted that the assessee has filed its return on 29-11-1998 declaring a total income at nil The assessee later on filed the revised return on 25-6-1998 and added back the entire depreciation claimed by it amounting to Rs. 63,47,016 on aircraft and steel cops and declared income at Rs. 14,66,630. Though the assessing officer has treated this revised return as non est because it was filed after the expiry of the time prescribed under section 139(4) of the Act, but in the assessment order she has started computing the income as per computation filed along with the revised return on 25-6-1998. In other words, the assessee did not claim depreciation on aircraft and steel cops, which has been accepted by the assessing officer. In its revised computation the assessee has reduced the income by a sum of Rs. 81,77,725 being the lease rentals received on steel cops and aircraft, which was originally added to the income of the assessee and thereafter added Rs. 19,91,059 being the financing charges included in the lease rentals. The assessing officer accepted all these computations except that she added lease rentals of Rs. 81,77,725. By not further reducing the finance charges included in the lease rentals to the extent of Rs. 19,91,059 it appears that this sum has been taxed twice. It is also seen from the assessment order that the assessing officer has thought of giving reduction of financial charges of Rs. 19.91 lakhs as the same was included in the lease rentals, which was included in the total income, but in the computation no such reduction was given.
Against this addition the assessee preferred an appeal before the CIT(A) with the submission that in the assessment year 1995-96 the assessee initially offered the lease rentals as its income and claimed hundred per cent depreciation on cops in terms of buy-back lease agreement. This lease agreement was doubted by the assessing officer and the assessee was asked to show cause as to why this transaction should not be treated as advancing of loan on an interest and why the depreciation claimed should not be disallowed. During the pendency of the assessment proceedings, the VDIS 1997 was notified and the assessee made a declaration under that scheme and declared Rs. 1, 11,69,8 10 in the assessment year 1995-96. In declaration the assessee withdrew the claim of hundred per cent depreciation on cops for the assessment year 1995-96 through its letter dated 31-12-1997. The assessee has also stated in that letter that they would also revise their subsequent returns. The assessee accordingly paid the taxes. Since the claim of the assessee was accepted in VDIS, a different treatment cannot be given to these transactions during the impugned assessment year. On account of this declaration furnished for the assessment year 1995-96 the assessee has revised its return for the assessment year 1996-97 and withdrew the claim of depreciation and treated these transactions as that of loans and advances as mentioned in the declaration, which was accepted by the revenue. Once the transactions are to be treated as that of loans and advances and withdrawal of claim of depreciation was approved by the revenue, the revenue cannot treat these rentals receipts as an income of the assessee. Only the finance charges can only be added to the income of the assessee and the same has already been offered to tax by the assessee in its revised return. The CIT(A) examined the whole issue in detail and arrived at a conclusion that even if the entire sum is received as lease rentals the facts very clearly show that it also included the cost of the assets and that only a sum of Rs. 10,45,200 represented the interest out of the total lease rentals of Rs. 50,65,200. He accordingly hold that out of total lease rentals of Rs. 50,65,200 received on cops, a sum of Rs. 10,45,200 represented the interest, meaning thereby the balance amount of Rs. 40,20,000 represented the cost of the asset which can never be taxed if the transaction is treated as that of loans and advances. The CIT (Appeals) accordingly held that the assessing officer was not correct in adding Rs. 50,65,200 to the total income of Rs. 14,66,631 whereas the finance charges of Rs. 10,45,200 has already been included in the computation of income by the assessee. He accordingly directed the assessing officer to delete the addition of Rs. 50,65,200. Similar is the position with respect to the addition of Rs. 31,12,525, which is a lease rental received on aircrafts. For the same reasons the CIT(Appeals) also directed the assessing officer to delete this addition as the assessee itself has offered the finance charges of Rs. 9,45,849 received on account of loan or advances in purchase of aircrafts.
Now the revenue has preferred an appeal before the Tribunal, but during the course of hearing could not point out a specific defect in the order of the CIT (Appeals). We, however, carefully examined the order of the CIT(A) and we find that once the revenue has accepted the declaration filed under VDIS for assessment year 1995-96 through which the assessee withdrew hundred per cent depreciation on so-called lease assets and treated this transaction as a transaction of loan and advances and offered the finance charges to taxes, the revenue cannot take other stand in the succeeding year where the assessee tried to follow the same system of accounting and withdrew the depreciation earlier claimed and offered the finance charges to tax through revised return though not filed in time. The assessing officer has besides allowing the withdrawal of depreciation, has added the lease rental to the income of the assessee, which is not permissible under the law because the revenue cannot blow hot and cold in the same breath. They cannot treat this transaction at one hand as a lease transaction for treating the lease rental as income of the assessee and, on the other hand, as a transaction of loan and advances for allowing a withdrawal of depreciation on the assets.
The CIT(A) has carefully examined this issue and has rightly held that once the depreciation was withdrawn by the assessee and finance charges were added to the income of the assessee, the lease rental received by the assessee cannot be added to the income of the assessee. He accordingly rightly directed the assessing officer to delete the additions of these alleged lease rentals received on account of cops and aircrafts. We, therefore, find no infirmity in the order of the CIT (Appeals) on this count and accordingly we uphold the same.
The next issue related to the disallowance of service charges of Rs. 27,02,610 paid to M/s. Olympic Management & Financial Services Ltd. (hereinafter referred to as M/s. OMFSL) on the last day of the accounting year i.e. 31-3-1996, which was a Sunday and a holiday. The Assessing officer has disallowed these service charges for the reasons that the assessee could not prove the services rendered by M/s. OMFSL for the assessee.
The assessee preferred an appeal before the CIT(A) with a plea that there is no bar that the SEBI registered financial management company cannot render the services of the custom clearance. In fact most of the financial companies have entered into various other activities to survive and the assessing officer without conducting any enquiry and bringing any evidence on record came to the conclusion that this company has not rendered any services for the assessee. With respect to the debit note prepared on 31-3-1996 it was also contended that if the contention of the assessing officer is to be accepted then the balance sheet of all the companies which were made on 31-3-1996 could not have been prepared as this day was a Sunday. During the course of hearing the assessee has filed a detailed note with respect to the services rendered by M/s. OMFSL and on this report a remand report was called from the assessing officer. Having examined the details of services and the objection of the assessing officer, the CIT (Appeals) was finally convinced with the explanations of the assessee and directed the assessing officer to delete the addition. Since the CIT (Appeals) has examined the issue minutely in its order, we extract the relevant portion of its order as under, for the sake of reference :- "I have gone through the facts and the rival submissions. It is clear that the purpose of payment of commission to Shri Manhar Bhagat is not well established. it is difficult to understand as to how and why, being a Director of M/s, Nirlon Ltd., he should have helped the appellant company in mobilizing the subscription to the right issue of M/s. Nirlon Ltd. On a consideration of all the facts and circumstances connected with this issue. 1 agree with the assessing officer that the commission of Rs. 3,96,875 paid to Shri Bhagat is not wholly and exclusively for the purpose of business and therefore the addition in this respect is upheld.Regarding the payment to M/s. Olympic Management & Financial Services Ltd. the facts do establish the justification of payment and, therefore, its deductibility under section 37(1) of the Act. It is a widely held public limited company, who has certified having received the payment through cheques. The payments have been received over a period of time and have also been received during the next financial year 1996-97. The debit note clearly shows that it was paid for co-ordinating customs transportation etc. M/s. XT also in its debit note shows the payment of set-vice charges made to the appellant for these services, which were partly sub-contracted to M/s. Olympic Management & Financial Ltd. The details of various consignments of equipment imported by XT Ltd. for expansion of Hoshiarpur plant submitted in the paper book from pages 187 to 192 certainly point to the fact that these imported machineries were moved from Bombay to Hoshiarpur. The date of debit note being 31-3-1996 which was Sunday should not be relevant in view of these facts so as to disallow the expenses. There is nothing brought on record to show that the claim of the appellant that M/s. Olympic Management & Financial Services Ltd. rendered services to it was bogus and nothing on record to show that the payment to M/s. Olympic Management & Financial Services Ltd. has been shown to evade taxes. The company is a widely held public limited company and unless it is proved otherwise expenditure and receipt both have to be accepted as the genuine. The transactions are through banks and there is no relationship between the management of these three companies to suggest any collusive arrangement for the evasion of tax.
The document submitted in pages 187 to 192 of the Paper Book is a part of the books of account maintained by the appellant. It was submitted that had the assessing officer asked for these details, it could have been submitted before her also. Therefore, under the circumstances, these pages have to be admitted as evidence. On a consideration of all these facts and circumstances 1 am of the opinion that the payment to M/s. Olympic Management to the extent of Rs. 27,02,610 was genuine and is allowable under section 37(1) of the Act and the assessing officer is, therefore, directed to allow the same." Aggrieved, the revenue has preferred an appeal before the Tribunal and placed heavy reliance upon the order of the assessing officer.
The learned counsel for the assessee, on the other hand, has invited our attention to the details of services rendered by M/s. OMSFL to it.
It has also furnished the details of the service charges received by the assessee. The learned counsel for the assessee has also contended before us that it is not a case where the service charges were paid at the end of the month. These were paid during the year. He has also invited our attention to the details of services rendered by M/s. 0MSFL and the payment received by the assessee from its principals and paid to M/s. OMSFL. The learned counsel for the assessee further invited our attention to the fact that the assessee did not have any other infrastructure to render services of clearance, transportation, loading and un-loading of various consignments of equipments booked by its principals to whom he has rendered services and he has sub-leased his contract to M/s. OMSFL to render the requisite services to its principals and the assessee has made the payment to M/s. OMSFL in lieu of services rendered by them. He has also invited our attention to the details of service charges received by the assessee and its payment to the other parties to whom the service contract was sub-leased.
According to these details appearing at page 108 of compilation of the assessee, the assessee has received Rs. 1,50,04,828 from different parties OD account of the services rendered for them and paid a sum of Rs. 31,96,875 to Shri Manhar Bhagat and to M/s. OMSFL at Rs. 27,02,6 10 and by doing so the assessee has earned a profit of Rs. 1, 19,05,343.
He has also invited our attention to the confirmation /certificate issued from XT Ltd. along with the annexures containing the details of services rendered by the assessee. It was further contended on behalf of the assessee that the assessee has not booked any expenditure on account of services rendered for its principals except the payment made to M/s. OMSFL and Mr. Manhar Bhagat. Since the receipt of service charges from various parties has not been disputed by the revenue, the necessary expenditure for these services rendered should have been allowed to the assessee. The revenue has not brought anything on record to prove that no services were rendered by the assessee or its sub-contractee for the principals of the assessee. As such, the payments made to the sub-contractee i.e. M/s. OMSFL cannot be disallowed.
Having beard the rival submissions and from a careful perusal of the record, we find that the assessee has entered into a contract with some of the parties like 1IMG Financial Service Co. Pvt. Ltd., G.K. Dhanuka and XT Ltd. to render services of clearance, transportation, loading and unloading of various consignments of equipments booked by these parties and for these services the assessee has received a sum of Rs. 1,50,04,828.62p. and this receipt was not disputed by the revenue. The assessee instead of rendering the services itself for these principals, has engaged some other parties like Mr. Manhar Bhagat and M/s. OMSFL to perform the services as agreed by it with its principals and the assessee has made the payment of Rs. 27,02,610 to M/s. OMSFL for rendering the aforesaid agreed services of clearance, transportation, loading and unloading of various consignments of equipments booked by the principals of the assessee. It is also an admitted fact that the assessee has not booked any other expenditure for rendering the aforesaid services to its principals. From the details of service charges received and paid by the assessee, we find that the assessee has received the service charges at Rs. 1,50,04,828 against which he has incurred the expenditure in the shape of payment to Mr. Manhar Bhagat and M/s. OMSFL at Rs. 30,99,485 and has earned a profit of Rs. 1, 1 9,05,343.62p. which was also offered to tax by the assessee. Since the receipt of service charges was not disputed by the revenue, an expenditure incurred by the assessee in the shape of payment to the aforesaid parties in order to execute the desired services cannot be disallowed by the revenue as the assessee has not booked any other expenditure except the aforesaid payments. We have also carefully examined the details of receipt of the service charges and the debit note and the certificate issued by XT Ltd. with regard to the services rendered by the assessee and we find that the assessing officer has rejected the claim of payment to M/s. OMSFL without bringing anything on record that it has not rendered any services either for the assessee or its principals whereas the assessee has placed all the relevant evidence to prove that how these machineries were imported and moved from Bombay to Hoshiarpur as desired by the principals of the assessee.
The CIT(A) has examined the relevant evidence before accepting the claim of the assessee. There is no bar in giving a contract to some other party instead of executing it of its own. In the instant case the assessee has obtained a contract for rendering services from its principals and given it to the sub-contractee for its execution and earned a substantial profit in it, which was offered to tax. This arrangement cannot be called to be collusive unless and until the revenue proves it otherwise. In the instant case, admittedly the assessee has not booked any other expenditure except the service charges paid to M/s. 0MSFI- and Mr. Manhar Bhagat and earned a substantial profit on account of set-vice charges. We, therefore, do no find any infirmity or anomaly in this business arrangement made by the assessee. Accordingly, we confirm the order of the CIT(A) who has minutely examined the facts of the case before deleting the addition.