Kirloskar Pneumatic Co.Ltd., V. DCIT, Cir 1(1), Pune,

ITA 1083/PUN/2004

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3218 (ITAT-PUNE)
• Duration Of Justice: 6 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: misc
• Appeal Filed On: 29-06-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARESHWAR SHARMA
• Keywords: Capital asset; Depreciation; Opportunity of being heard
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI I.C.SUDHIR JM AND SHRI D. KARUNAKARA RA O AM I.T.A. 1083/PN/2004 (ASSTT.YEAR : ) KIRLOSKAR PNEUMATIC CO. LTD. APPELLANT HADAPSAR INDUSTRIAL ESTATE, HADAPSAR, PUNE- 411 013 PAN : AAACK7295G VS. DCIT, CIRCLE 1(1), PUNE RESPONDENT PMT BUILDING, SWARGATE, PUNE 411037 APPELLANT BY : SHRI C.H. NANIWADEKAR RESPONDENT BY : SHRI HARESHWAR SHARMA ORDER PER I.C. SUDHIR JM ASSESSEE HAS IMPUGNED FIRST APPELLATE ORDER ON THE FOLLOWING GROUNDS : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONF IRMING DISALLOWANCE OF CLAIM FOR DEPRECIATION OF RS.3,61,34,464/- ON THE A SSETS OWNED BY THE ASSESSEE AND LEASED TO PRAKASH INDUSTRIES LTD. MAD E BY THE LEARNED ASSESSING OFFICER IN HIS ORDER U/S. 143(3) R.W.S. 1 47 OF THE INCOME TAX ACT, 1961 DATED 11.03.2002. 2.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN CONFIRMING THAT THE APPELLANT COMPANY HAD CLAIMED D EPRECIATION OF RS. 3,61,34,464/- ON ALLEGED FICTITIOUS ASSETS LEASED T O PRAKASH INDUSTRIES LTD IGNORING THE FACT THAT THE INVOICE WAS RAISED BY AN D PAYMENT WAS ACCEPTED BY THE VENDORS. 2.2 THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN NOT APPRECIATING THAT THE AFORESAID ASSETS WERE INSURED BY NEW INDIA ASSURANCE CO. LTD. A GOVERNMENT COMPANY SINCE 1996 ONWARDS AND WERE PHYSICALLY INSPECTED FROM TIME TO TIME BY INDBANK MERCHANT BAN KING SERVICES LTD. 3.1 WITHOUT PREJUDICE TO GROUND NO. 1 & 2, THE LEA RNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT APPRECIATING THA T THE APPELLANT COMPANY HAD IN THE COURSE OF CARRYING ON THE LEASING BUSIN ESS AND AFTER TAKING ALL PRECAUTIONS, BONAFIDE, PURCHASED THE SAID ASSETS FR OM THE VENDORS AND IN CASE IT WAS HELD THAT PRAKASH INDUSTRIES LTD HAD CO NNIVED WITH NON-EXISTENT VENDORS TO COMMIT FRAUD ON THE APPELLANT AND/OR IND BANK, THEN THE LOSS ARISING WAS IN THE NATURE OF TRADING LOSS. ITA NO. 1083/PN/2004 KIRLOSKAR PNEUMATIC CO. LTD. (A.Y. 1996-97) , 2 3.2 HE ERRED IN NOT APPRECIATING THAT THE AMOUNTS PAID/INCURRED OF RS.3.61 CRORES WAS A TRADING LOSS AND WAS AN ALLOWABLE DEDU CTION EITHER ENTIRELY IN ASSESSMENT YEAR 1996-97 OR ON ACTUAL PAYMENT BASIS IN THE RESPECTIVE YEARS IN WHICH THE AMOUNTS WERE PAID TO INDBANK. 4 WITHOUT PREJUDICE TO ABOVE THE LEARNED COMMISSIO NER OF INCOME TAX (APPEALS) ERRED IN NOT GRANTING DEDUCTION FOR THE H IRE PURCHASE INSTALMENTS INCURRED OF RS. 3.61 CRORES OR THE INSTALMENTS ACTU ALLY DISBURSED TO INDBANK DURING THE YEAR AS AN OUTGOING OR EXPENDITURE INCUR RED FOR EARNING THE [SO CALLED] LEASE RENTALS OFFERED AS INCOME AND ASSESSE D TO TAX. 5.1 WITHOUT PREJUDICE TO GROUND NO. 1 TO 4 THE LEA RNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THAT THE S O CALLED LEASE RENTALS OF RS.45,65,472/- RECEIVED FROM PRAKASH INDUSTRIES IN RESPECT OF ABOVE LEASE TRANSACTION ARE ASSESSABLE AS PART OF TOTAL INCOME OF THE APPELLANT COMPANY. 5.2 HAVING CONFIRMED THAT THERE IS NO LEASE TRANSA CTION, HE ERRED IN NOT APPRECIATING THAT AS A LOGICAL COROLLARY, THE AMOUN T OF RS.45,65,472/- RECEIVED FROM PRAKASH INDUSTRIES LTD. IN AKIN TO REFUND OF P RINCIPAL AMOUNT AND HENCE THE SAID AMOUNT HAS TO BE EXCLUDED WHILE COMPUTING TOTAL INCOME OF THE APPELLANT COMPANY. 6. THE APPELLANT COMPANY PRAYS FOR APPROPRIATE REL IEF. 2. WE HAVE HEARD AND CONSIDERED THE ARGUMENTS ADVA NCED BY THE PARTIES IN VIEW OF ORDERS OF THE LOWER AUTHORITIES, MATERIAL A VAILABLE ON RECORD AND THE DECISIONS RELIED UPON ON GROUNDS NO. 1, 2.1 AND 2.2 . 3. THE RELEVANT FACTS ARE THAT THE ASSESSEE ENGAGE D IN THE BUSINESS OF MANUFACTURE OF AIR AND GAS COMPRESSORS, REFRIGERATI ON, COMPRESSORS, PNEUMATIC TOOLS, AIR-CONDITIONING TOOLS ETC., HAD CLAIMED 100 % DEPRECIATION AMOUNTING TO RS.5,97,03,130/- ON ASSETS TAKEN ON HIRE PURCHASE, FINANCED FROM INDBANK MERCHANT BANKING SERVICES LTD. AND LEASED TO PRAKASH INDUST RIES LTD. AND RENEWABLE ENERGY SYSTEM LTD., WHICH WAS ALLOWED TO THE ASSESSEE IN T HE ASSESSMENT ORDER FRAMED U/S. 143(3) OF THE ACT. A.O. RECEIVED THE INFORMAT ION THAT PRAKASH INDUSTRIES LTD. WAS INDULGED IN CLAIMING TAX DEPRECIATION AT THE RA TE OF 100% ON NON-EXISTING POLLUTION CONTROL, DUST CONTROL MACHINERY ETC. AND THAT THE ASSESSEE COMPANY WAS ONE OF THE BENEFICIARIES. IT WAS ALSO BROUGHT ON R ECORD THAT STAR ENGG. WORKS AND PIONEER ENGG. WORKS WERE BOGUS ENTITIES AND DID NOT HAVE THE NECESSARY ITA NO. 1083/PN/2004 KIRLOSKAR PNEUMATIC CO. LTD. (A.Y. 1996-97) , 3 INFRASTRUCTURE, RESOURCES AND MANPOWER TO MANUFACTU RE THE TYPE OF EQUIPMENTS USED AS FLAMELESS FURNACE OR AIR POLLUTION CONTROL EQUIPMENT. INDEPENDENT ENQUIRIES WERE CONDUCTED BY THE ASSESSING OFFICER THAT STAR ENGG. WORKS AND PIONEER ENGG. WORKS SHOULD HAVE CONFIRMED THAT THEY HAVE NEITHER MANUFACTURED NOR SUPPLIED THE ALLEGED EQUIPMENT TO THE ASSESSEE. THEY ALSO CONFIRMED THAT THEY DO NOT HAVE ADEQUATE RESOURCES AND MANPOWER TO MAN UFACTURE THE ALLEGED EQUIPMENTS. THE A.O DID NOT AGREE WITH THE EXPLANA TION OF THE ASSESSEE CALLED FOR IN THIS REGARD AND DISALLOWED THE CLAIMED DEPRECIAT ION OF RS.3,51,34,464/-. ON PURCHASE FROM STAR ENGG WORKS AND PIONEER ENGG. WOR KS AMOUNTING TO RS.3,61,34,464/- ON THE BASIS THAT STAR ENGG. WORK S AND PIONEER ENGG. WORKS HAD CONFIRMED THAT THEY HAD NEITHER MANUFACTURED NOR SU PPLIED THE PLANTS OR MACHINERY IN QUESTION NOR DID THEY HAVE RESOURCES OR MANPOWER TO MANUFACTURE THE SAME. THE A.O FURTHER HELD THAT THE ASSESSEE FAILED TO PR ODUCE ANY POSITIVE EVIDENCE TO PROVE THAT STAR ENGG. WORKS AND PIONEER ENGG. WORKS HAD SUPPLIED THE ALLEGED ASSETS TO IT. THE A.O, ACCORDINGLY, HELD THAT THE ASSESSEE COULD NOT BE CONSIDERED AS THE OWNER OF THE ASSET. THE EXPLANATION OF THE ASSESSEE REMAINED THAT THE LEASED ASSETS WERE PURCHASED FROM INDBANK MERCHANT BANKING SERVICES LTD. (IN SHORT INDBANK) AND THE HIRE PURCHASE AGREEMENT CLE ARLY PROVIDED THAT THE HIRER WAS ENTITLED TO CLAIM DEPRECIATION UNDER THE INCOME TAX ACT. INDBANK HAD ACQUIRED THE FLAMELESS FURNACE AND AIR POLLUTION CONTROL EQUIPME NT FROM M/S. ASHISH ENGG. WORKS (NOW KNOWN AS STAR ENGG. WORKS) AND M/S. PION EER ENGG. CO AND THE WIND OPERATED GENERATOR FROM RENEWABLE ENERGY SYSTEMS LT D. IT WAS ALSO STATED THAT LEASE RENT WAS OFFERED TO TAX. 4. THE ASSESSEE ALSO RAISED ALTERNATIVE PLEA THAT M ONEY HAS BEEN PAID TO INDBANK AND HENCE, THERE IS A BUSINESS LOSS TO THE TUNE OF THE COST OF THE EQUIPMENT AS DEDUCED BY THE LEASE RENTAL RECEIVED F ROM THE LESSEE. THIS ALTERNATIVE SUBMISSION WAS ALSO NOT ACCEPTED BY THE A.O. THE A .O, ACCORDINGLY, FRAMED THE RE- ASSESSMENT DETERMINING THE INCOME AT RS. 5,42,08,25 0/-. BEFORE THE LD CIT(A), THE ITA NO. 1083/PN/2004 KIRLOSKAR PNEUMATIC CO. LTD. (A.Y. 1996-97) , 4 ASSESSEE QUESTIONED THE DISALLOWANCE OF RS. 3,61,34 ,464/- AND THE ACTION OF THE A.O IN NOT ACCEPTING THE ASSESSEES ALTERNATE PLEA. TH E ASSESSEE COULD NOT SUCCEED IN THE FIRST APPEAL AS THE LD CIT(A) HAS UPHELD THE A CTION OF THE A.O. 5. IN SUPPORT OF THE GROUND, THE LD. A.R. SUBMITTE D THAT THE ASSESSEE HAD TAKEN ON HIRE PURCHASE TWO EQUIPMENTS VIZ. FLAMELES S FURNACE AND ELECTROSTATIC PRECIPITATION SYSTEM (AIR POLLUTION CONTROL EQUIPME NT) FROM INDBANK, A FULLY OWNED SUBSIDIARY OF INDIAN BANK. HE REFERRED PAGE NO. 6 TO 10 OF THE PAPER BOOK WHEREIN COPY OF THE HIRE PURCHASE AGREEMENT IS MADE AVAILAB LE. THE ASSESSEE LEASED OUT THESE MACHINES TO M/S. PRAKASH INDUSTRIES LTD. (LEA SE AGREEMENT AVAILABLE AT PAGE NOS. 32 TO 91 OF THE PAPER BOOK) AND THE ASSESSEE C OMPANY CLAIMED DEPRECIATION THEREON IN ACCORDANCE WITH LAW. HE SUBMITTED THAT INDBANK PURCHASES THE MACHINES, FLAMELESS FURNACE FROM M/S. ASHISH ENGG. WORKS AND AIR POLLUTION CONTROL EQUIPMENT FROM M/S. PIONEER ENGG. CO. THESE MACHIN ES WERE DULY TRANSPORTED TO M/S. PRAKASH INDUSTRIES LTD SITE AT CHAMPA (M.P) AN D ZAGDIA (GUJARAT) RESPECTIVELY. COPIES OF INVOICE AND TRANSPORTERS RECEIPTS ARE MA DE AVAILABLE AT PAGE NO.22 TO 29 OF THE PAPER BOOK. THE LD. A.R SUBMITTED FURTHER T HAT THESE MACHINES WERE DULY INSURED WITH THE NEW INDIA ASSURANCE COMPANY LTD., A GOVERNMENT OF INDIA COMPANY (COPIES OF INSURANCE POLICIES ARE AVAILABLE AT PAGE NOS. 100 AND 101 OF THE PAPER BOOK). THESE MACHINES WERE DULY INSTALLED BY M/S. PRAKASH INDUSTRIES LTD AND CERTIFICATE TO THAT EFFECT IS AVAILABLE AT PAGE NOS. 98 AND 99 OF THE PAPER BOOK. THESE MACHINES WERE PHYSICALLY INSPECTED FROM TIME TO TIME BY INDEPENDENT CHARTERED ACCOUNTANTS AS WELL AS BY THE OFFICIALS O F INDBANK (COPIES OF THE INSPECTION REPORTS ARE AVAILABLE AT PAGE NO. 104 TO 113 OF THE PAPER BOOK). 5.1. THE LD. A.R SUBMITTED THAT THE ASSESSEE COMPAN Y HAS ACTUALLY PAID THE HIRE CHARGES DUE UNDER THE HIRE PURCHASE AGREEMENT TO IN DBANK AND NO DUE CERTIFICATE BY INDBANK IS AVAILABLE AT PAGE NO. 146 OF THE PAPE R BOOK. OUT OF THE HIRE INSTALLMENTS, THE INTEREST PORTION IS ALLOWED AS DE DUCTION IN THE CURRENT A.Y. AS WELL ITA NO. 1083/PN/2004 KIRLOSKAR PNEUMATIC CO. LTD. (A.Y. 1996-97) , 5 AS IN THE SUBSEQUENT A.YS. AND GENUINENESS OF THE H IRE PURCHASE TRANSACTION IS NEVER CHALLENGED BY THE INCOME TAX DEPARTMENT. HE SUBMITTED THAT DURING THE RE- ASSESSMENT PROCEEDINGS, THE A.O HAD ASKED THE ASSES SEE TO PROVE THE OWNERSHIP AND EXISTENCE OF THE ASSETS. IN RESPONSE, THE ASSE SSEE SUBMITTED THE ABOVE STATED DOCUMENTS AS IT IS APPARENT FROM THE CONTENTS OF PA RA NO. 4.6, PAGE NO. 6 OF THE ASSESSMENT ORDER. THE A.O ALSO SENT NOTICES U/S. 131/133 TO M/S. ASHISH ENGG. WORKS (NOW KNOWN AS STAR ENGG. WORKS AND M/S. PIONE ER ENGG. CO., AS ALSO TO INDBANK. REPLY SENT BY STAR ENGINEERING WORKS IS A VAILABLE ON PAGE NO. 9 OF THE ASSESSMENT ORDER AND COPIES OF REPLY RECEIVED FROM M/S. PIONEER ENGINEERING CO. AND INDBANK WERE SUBMITTED DURING THE COURSE OF HEA RING. WHILE INDBANK CONFIRMED THE TRANSACTIONS WITH ASSESSEE COMPANY, M/S. STAR ENGINEERING WORKS STATED THAT THEY HAVE NEVER SUPPLIED ANY MACHINE TO ASSESSEE COMPANY. M/S. PIONEER ENGG. CO. STATED THAT THEY HAVE NEVER SOLD ANY AIR POLLUTION EQUIPMENT TO THE ASSESSEE. M/S. PIONEER ENGG. CO., HOWEVER, STA TED THAT THEY HAVE MANUFACTURED ONE AIR POLLUTION EQUIPMENT FOR M/S. PRAKASH INDUST RIES LTD., CHAMPA, MADHYA PRADESH. UNDER THESE CIRCUMSTANCE, THE A.O HELD T HAT THE IMPORTANT TEST OF OWNERSHIP OF ASSET IS NOT SATISFIED BY THE ASSESSEE AND THE SUPPLIERS HAS DENIED THE MANUFACTURE AND SALE OF MACHINES TO ASSESSEE. THE A.O HAS, THUS, DISALLOWED THE CLAIMED DEPRECIATION. THE LD CIT(A) WITHOUT DISCUS SING THE ISSUE ON MERIT HAS SIMPLY APPLIED THE DECISION OF SPECIAL BENCH IN THE CASE OF MID EAST PORT FOLIO MANAGEMENT LTD. V/S. DCIT, ITA NO. 5616/MUM/1999 DT . 14.2.2003 AND DISMISSED THE ASSESSEES APPEAL. 6. THE LD. A.R. SUBMITTED THAT IT WAS NEVER THE CAS E OF THE ASSESSEE THAT ASSETS WERE PURCHASED FROM M/S. STAR ENGG. WORKS AND M/S. PIONEER ENGG. CO. THE ASSESSEE ALWAYS MAINTAINED THAT IT HAS ACQUIRED MAC HINES ON HIRE PURCHASE BASIS FROM INDBANK, A GOVERNMENT OF INDIA AND IT IS ENTIT LED TO CLAIM DEPRECIATION THEREON BY VIRTUE OF CBDT CIRCULAR NO. 9 DT. 23.3.1 943 AND OTHER CASE LAWS REFERRED BELOW : ITA NO. 1083/PN/2004 KIRLOSKAR PNEUMATIC CO. LTD. (A.Y. 1996-97) , 6 1) UNIMED TECHNOLOGIES V/S. DCIT, 73 ITD 150 2) ACIT V/S. GENERAL INDUSTRIAL CORPORATION, 155 I TR 430 3) KARIMJI PVT. LTD. V/S. ITO, 15 SOT 128 4) BLS FINANCIAL LTD. V/S. DCIT, 5 SOT 362 5) JCIT V/S. INDIAN MANAGEMENT ADVISOR, 19 SOT 156 6) TAMIL NADU DAIRY CORPORATION V/S. CIT, 239 ITR 140 7. AS REGARD ALLEGED DENIAL BY M/S. STAR ENGG. WORK S AND M/S. PIONEER ENGG. CO., THE LD. A.R. SUBMITTED THAT THEY HAVE DENIED T HE FACT OF SALE TO ASSESSEE WHICH THEY WERE BOUND TO SAY FOR THE SIMPLE REASON THAT T HEY HAVE NOT SOLD THE MACHINE TO THE ASSESSEE COMPANY. IT WAS ALSO NOT THE CASE OF THE ASSESSEE THAT THE ASSESSEE HAS PURCHASED THE MACHINES FROM THESE PART IES. THE LD. A.R SUBMITTED FURTHER THAT TO A SPECIFIC QUESTION NO. 4, M/S. PIO NEER ENGG. CO. HAVE EXPRESSLY STATED THAT THEY HAVE MANUFACTURED ONE AND ONLY ONE AIR POLLUTION CONTROL EQUIPMENT FOR PRAKASH INDUSTRIES LTD., CHAMPA, M.P DURING THE PERIOD 1994 TO 1996. AFTER GOING THROUGH THE INVOICE AND TRANSPORT ATION RECEIPT MADE AVAILABLE ON PAGE NO. 28 & 29 OF THE PAPER BOOK, IT IS OBVIOUS T HAT THEY ARE REFERRING TO SAME AIR POLLUTION CONTROL EQUIPMENT WHICH IS THE SUBJECT MA TTER OF PRESENT DISPUTE. IT IS, THUS, ABUNDANTLY CLEAR THAT M/S. PIONEER ENGG. CO. HAVE, IN FACT, CONFIRMED THE TRANSACTION AND NOT DENIED IT. ALTHOUGH M/S. STAR ENGG. WORKS STATED THAT THEY HAVE NEVER MANUFACTURED OR SUPPLIED ANY OF THE MAC HINE TO THE ASSESSEE COMPANY, THEY HAVE NOT REPLIED AND CHOSEN TO REMAIN SILENT T O OTHER SIMILAR QUESTIONS AS WAS ASKED TO M/S. PIONEER ENGG. CO. THE LD. A.R. REF ERRED THEIR STATEMENTS REPRODUCED AT PAGE NO. 9 OF THE ASSESSMENT ORDER WH ERE THEY STATED THAT ON THE BASIS OF THE ABOVE, THE QUESTION OF PROVIDING INFOR MATION TO YOUR POINT NO. 1 TO 4 AND 6 TO 12 DOES NOT ARISE. THUS, THEY ONLY STATE D THAT THEY HAVE NOT SOLD ANY MACHINE TO ASSESSEE COMPANY WHICH IN ANY CASE WAS N EVER THE CASE OF THE ASSESSEE. THE LETTER OF M/S. STAR ENGG. WORKS, THU S, DOES NOT SERVE ANY PURPOSE ITA NO. 1083/PN/2004 KIRLOSKAR PNEUMATIC CO. LTD. (A.Y. 1996-97) , 7 AND CANNOT BE TREATED AS DENIAL OF THE TRANSACTION, AS SUCH SUBMITTED THE LD. A.R. THE LD. A.R. SUBMITTED THAT ASSESSEE ALWAYS CLAIMED THAT IT HAS PURCHASED ASSETS OF HIRE PURCHASE FROM INDBANK AND MOST IMPORTANTLY, IN DBANK HAS CONFIRMED THE TRANSACTION. 8. AS REGARDS PHYSICAL EXISTENCE OF THE ASSETS, TH E LD. A.R. INVITED OUR ATTENTION TO THE COPIES OF INSURANCE POLICIES (PAGE NOS. 100 AND 101 OF THE PAPER BOOK), INDEPENDENT CHARTERED ACCOUNTANTS CERTIFICATES FOR EXISTENCE OF ASSETS (PAGE NOS. 104 AND 105 OF THE PAPER BOOK) AS ALSO PERIODIC INS PECTION REPORTS OF INDBANK (PAGE NOS. 106 TO 109 OF PAPER BOOK). THE LD. A.R. SUBMIT TED THAT AUTHENTICITY AND GENUINENESS OF THESE DOCUMENTS HAVE NEVER BEEN QUES TIONED. A.O. HAS COMPLETELY IGNORED THESE EVIDENCE. 9. THE LD. A.R. SUBMITTED FURTHER, SIMPLY BECAUSE THE TRANSACTION IS WITH PRAKASH INDUSTRIES LTD., AN ALLEGEDLY MALIGNED PART Y, THE TRANSACTION SHOULD NOT BE BRANDED AS COLOURABLE DEVICE. HE SUBMITTED THAT PR AKASH INDUSTRIES LTD. HAVE ALSO ENTERED INTO GENUINE TRANSACTIONS AND INVITED ATTEN TION OF THE BENCH TO THE DECISION IN THE CASE OF JCIT V/S. INVESTMENT TRUST OF INDIA LTD., ITA NO. 119 TO 123/MAD/1999 (A.Y. 1991-92 TO 1995-96), ORDER DT. 2 6 TH APRIL 2006, MADE AVAILABLE. 10. LD. A.R. ALSO SUBMITTED THAT INTEREST ELEMENT O F HIRE PURCHASE WAS ALLOWED TO THE ASSESSEE NOT ONLY IN THE CURRENT A.Y. BUT IN SU BSEQUENT A.YS AS WELL. IN SUPPORT, HE PLACED RELIANCE ON THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF MAA COMMUNICATION OF BOZELL LTD., 7 SOT 933 (BANGALORE). 11. IN RESPECT OF ISSUE OF DEPRECIATION ON THE ASS ETS TAKEN ON HIRE PURCHASE, THE LD. A.R. REFERRED CBDT CIRCULAR NO. 9 OF 1943 (PAG E NO. 20 OF THE PAPER BOOK. ITA NO. 1083/PN/2004 KIRLOSKAR PNEUMATIC CO. LTD. (A.Y. 1996-97) , 8 12. IN SUPPORT OF ALTERNATIVE GROUND NO. 3.1 TO 3.2 AND 3.4, THE LD. A.R. SUBMITTED THAT EVEN IF LEASE TRANSACTION IS HELD AS COLOURABLE DEVICE AND DEPRECIATION IS DENIED, STILL THE GENUINENESS OF TH E HIRE PURCHASES TRANSACTION IS NOT IN DOUBT AND IS TREATED AS BUSINESS TRANSACTION. T HE AMOUNT PAID TO INDBANK IS, THUS, LOSS INCURRED IN THE COURSE OF BUSINESS, IS T HUS TO BE ALLOWED AS A BUSINESS LOSS U/S. 28. HE PLACED RELIANCE ON THE DECISION OF RAJ ASTHAN HIGH COURT IN THE CASE OF CIT V/S. ANJANIKUMAR, 259 ITR 114 (RAJ.) HOLDING TH AT IRRECOVERABLE ADVANCES FOR ACQUISITION OF CAPITAL ASSETS IS A BUSINESS LOSS. 13. IN SUPPORT OF FURTHER ALTERNATIVE CONTENTION RA ISED IN GROUND NO. 5.1 AND 5.2, THE LD. A.R. SUBMITTED THAT IN THE EVENT THE LEASE TRANSACTION WITH PRAKASH INDUSTRIES LTD IS HELD AS NON-GENUINE FROM THE LEAS E RENT OF RS.45,65,472/- PAID TO ASSESSEE BY PRAKASH INDUSTRIES WHICH IS OFFERED TO TAX AS INCOME, IS CLAIMED TO THE FUND OF PRINCIPLE AMOUNT AND IS, THUS, A CAPITAL RE CEIPT. 14. THE LD. D.R., ON THE OTHER HAND, PLACED RELIANC E ON THE ORDERS OF THE LOWER AUTHORITIES. HE REFERRED PAGE NO. 21 OF THE PAPER BOOK FILED ON BEHALF OF THE DEPARTMENT I.E. A LETTER ISSUED BY STAR ENGG. WORKS TO THE JOINT COMMISSIONER OF INCOME TAX, SPECIAL RANGE, INTIMATING THAT THEY ARE HAVING A TINY SMALL WORKSHOP AND THEY DO NOT HAVE ANY SUCH SOPHISTICATED MACHIN ERY TO MANUFACTURE THE MACHINES I.E. FLAMELESS FURNACE. REGARDING PURCHAS E OF POLLUTION CONTROL EQUIPMENT, THE LD. D.R. REFERRED LETTER DT. 8.1.200 0 OF PIONEER ENGG. CO. ISSUED TO DCIT (INVESTIGATION) INFORMING THAT THEY HAVE MANUF ACTURED ONE AND ONLY ONE POLLUTION CONTROL EQUIPMENT FOR PRAKASH INDUSTRIES LTD., CHAMPA, M.P. DURING THE YEARS 1994 TO 1996. THE LD. D.R. SUBMITTED THAT UND ER THE ABOVE CIRCUMSTANCES, THE A.O HAS RIGHTLY CONCLUDED THAT ASESSEE HAS FAIL ED TO DISCHARGE ITS ONUS REGARDING THE CLAIMED SUPPLY OF MACHINES. THE LD. D.R. ALSO REFERRED PAGE NO. 181 OF THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE I.E. COP Y OF VISIT REPORT DT. 25.9.2000 BY INDBANK STATING THAT THERE IS NO IDENTIFICATION NOS . ON THE ASSETS AND NAME OF THE ITA NO. 1083/PN/2004 KIRLOSKAR PNEUMATIC CO. LTD. (A.Y. 1996-97) , 9 COMPANY IS ALSO NOT PAINTED. THE LD. D.R. ALSO REF ERRED PAGE NO. 42 OF THE PAPER BOOK OF THE ASSESSEE I.E. PART OF LEASE AGREEMENT BETWEEN PRAKASH INDUSTRIES LTD. AND THE ASSESSEE MENTIONING IN PARA 4.2 THEREOF TO AFFIX A NAME PLATE OR MARK ON THE EQUIPMENT IDENTIFYING THE SOLE AND EXCLUSIVE OW NERSHIP THEREOF OF THE MACHINERY AND NOT TO ALLOW OR TO PERMIT THE SAME TO BE REMOV ED OR DEFACED. ABOUT INDBANK MERCHANT BANKING SERVICES LTD., I.E. A NATIONALIZE D BANK, THE LD. D.R. SUBMITTED THAT BASICALLY IT IS A COMMERCIAL BODY. ON THE ALT ERNATIVE CONTENTION REGARDING CLAIM OF BUSINESS LOSS RAISED BY THE LD. A.R., THE LD. D. R. SUBMITTED THAT WHEN THERE IS NO BUSINESS, THERE IS NO QUESTION OF ALLOWING OF TRADE LOSS. 15. IN REJOINDER, THE LD. A.R. REFERRED PAGE NO. 2 2 AND 23 OF THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE I.E. DELIVERY CHALL AN-CUM-INVOICE MENTIONING THE MODE OF TRANSPORT, NAME OF TRANSPORTER AND DESTINAT ION AS PRAKASH INDUSTRIES LTD. HE ALSO REFERRED PAGE NO. 24 OF THE PAPER BOOK I.E. CONSIGNEE COPY/INVOICE ISSUED BY BHILAI GARRAGE, COMPANY OWNER AND TRANSPORT COMM ISSIONING AGENT. THE LD. A.R. ALSO REFERRED PAGE NO. 25 OF THE PAPER BOOK FI LED ON BEHALF OF THE ASSESSEE I.E. INVOICE ISSUED BY PIONEER ENGG. CO. REGARDING PART SUPPLIED OF AIR POLLUTION CONTROL EQUIPMENT, DESTINED TO PRAKASH INDUSTRIES LTD., THR OUGH OMKAR TRANSPORT COMPANY. HE ALSO REFERRED PAGE NO. 26 OF THE PAPER BOOK I.E. INVOICE ISSUED BY OMKAR TRANSPORT COMPANY. AT PAGE NO. 27 OF THE PAPER BOO K, HAS BEEN PLACED THE CERTIFICATE ISSUED BY PRAKASH INDUSTRIES LTD. AFFIR MING THE CLAIMED LEASE. AT PAGE NO. 28 OF THE PAPER BOOK, HAS BEEN PLACED COPY OF D ELIVERY CHALLAN/INVOICE ISSUED BY PIONEER ENGG. CO. DESTINED TO PRAKASH INDUSTRIES L TD., THROUGH OMKAR TRANSPORT COMPANY. AT PAGE NO. 29 OF THE PAPER BOOK HAS BEEN PLACED COPY OF INVOICE BY OMKAR TRANSPORT CO. AT PAGE NO. 31, IS THE MONEY RECEIPT ISSUED BY PIONEER ENGG. CO. THE LD. A.R. ALSO REFERRED LETTER DT. 21 ST FEBRURARY 2002 ISSUED BY INDBANK TO THE DY. COMMISSIONER OF INCOME TAX, PUNE, CONFIRMIN G THAT THEY HAVE GIVEN ON HIRE THE CLAIMED MACHINERIES UNDER HIRE PURCHASE AGREEME NT DT. 28.9.1995 TO THE ASSESSEE AT THE LOCATION OF ASSETS UNDER AGREEMENT TO PRAKASH INDUSTRIES LTD., ITA NO. 1083/PN/2004 KIRLOSKAR PNEUMATIC CO. LTD. (A.Y. 1996-97) , 10 CHMPA (M.P) AND ZAGADIA (GUJARAT) AT RENEWABLE ENE RGY SYSTEMS LTD., ANANTPUR (AP). THE LD. A.R. SUBMITTED THAT COPIES OF THESE DOCUMENTS HAVE BEEN MADE AVAILABLE BEFORE THE LOWER AUTHORITIES. 16. HAVING GONE THROUGH THE ORDERS OF THE LOWER AUT HORITIES IN VIEW OF THE ABOVE SUBMISSION, WE FIND THAT LOWER AUTHORITIES HAVE DEN IED THE CLAIMED LEASING OUT OF THE MACHINES TO M/S. PRAKASH INDUSTRIES LTD.,AND RE NEWABLE ENERGY SYSTEM LTD. MAINLY ON THE BASIS THAT THE ASSESSEE HAS FAILED TO ESTABLISH ITS OWNERSHIP OVER THESE MACHINES AND ITS PHYSICAL EXISTENCE. THE A.O . ACCORDINGLY DENIED THE CLAIMED DEPRECIATION BY THE ASSESSEE ON THOSE MACHINES. TH E THROUGH-OUT CONTENTION OF THE ASSESSEE, HOWEVER, REMAINED THAT THOSE MACHINES WER E PURCHASED BY THE ASSESSEE ON HIRE PURCHASE BASIS FROM INDBANK, WHO HAS CONFIR MED THE TRANSACTIONS, IT WAS CONTENDED THAT AS FAR AS PURCHASE OF THE MACHINES IS CONCERNED, THE ASSESSEE WAS NOT DEALING WITH M/S. STAR ENNG. WORKS AND M/S. PIO NEER ENGG. CO., BUT WAS DEALING WITH INDBANK AND SINCE INDBANK HAS CONFIRMED THE TR ANSACTION, THE ASSESSEE HAS DISCHARGED ITS ONUS TO FULL EXTENT. IT WAS ASSERTE D BY THE LD. A.R. THAT THE HIRE PURCHASE TRANSACTION BETWEEN THE ASSESSEE AND INDBA NK WHICH IS FOUNDATION OF THE CLAIM OF THE ASSESSEE WAS ALWAYS TREATED AS GENUINE BUSINESS TRANSACTION. ON THE ISSUE OF TEST OF OWNERSHIP RAISED BY THE A.O, THE SUBMISSION OF THE LD. A.R REMAINED THAT IT IS COVERED BY THE CBDT CIRCULAR NO . 9 OF 1943 (PAGE 20 OF THE PAPER BOOK) AND THE DECISIONS RELIED UPON BY THE LD . A.R. IN THIS REGARD, MENTIONED ABOVE INCLUDED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MADEVA UPENDRA SINAI V. UNION OF INDIA AND OTHERS, 98 ITR 209 (S.C). ON THE ISSUE OF PHYSICAL EXISTENCE OF THE MACHINES, THE LD. A.R. HA S ALSO PLACED RELIANCE ON SEVERAL DOCUMENTS LIKE INSURANCE POLICIES, CERTIFICATE OF C HARTERED ACCOUNTANTS, PERIODIC INSPECTION REPORTS OF INDBANK, DELIVERY CHALLAN-CUM -INVOICE MENTIONING MODE OF TRANSPORT, NAME OF TRANSPORTER AND DESTINATION, INV OICE ISSUED BY M/S. PIONEER ENGG. CO. ETC., MADE AVAILABLE IN THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE TO SUPPORT THE PHYSICAL EXISTENCE OF THE MACHINES. IT WAS CON TENDED BY THE LD. A.R. THAT ITA NO. 1083/PN/2004 KIRLOSKAR PNEUMATIC CO. LTD. (A.Y. 1996-97) , 11 AUTHENTICITY AND GENUINENESS OF THESE DOCUMENTS HAV E NEVER BEEN QUESTIONED BY THE LOWER AUTHORITIES. UNDER THESE CIRCUMSTANCES, WE FIND THAT THE LOWER AUTHORITIES SHOULD HAVE EXAMINED THE GENUINENESS OF CLAIMED LE ASING OUT OF THE MACHINES TO THE NAMED PARTIES AND CLAIMED DEPRECIATION THEREUPO N KEEPING IN MIND THAT IT HAS BEEN THROUGH-OUT THE CASE OF THE ASSESSEE THAT THE MACHINES IN QUESTION WERE TAKEN ON HIRE PURCHASE BASIS THROUGH INDBANK AND FOR PURC HASING OF THOSE MACHINES, THE ASSESSEE HAD NOT DEALT WITH M/S. STAR ENGG. WORKS A ND M/S. PIONEER ENGG. CO. WE, THUS, SET ASIDE THE MATTER TO THE FILE OF THE LD CI T(A) TO DECIDE THE ISSUE AFRESH AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE PARTIES AN D AFTER GETTING THE CLAIM OF THE ASSESSEE VERIFIED THAT THE MACHINES IN QUESTION WE RE TAKEN BY THE ASSESSEE ON HIRE PURCHASE BASIS FROM INDBANK, AND THEREAFTER THOSE M ACHINES WERE LET OUT TO THE ABOVE NAMED PARTIES I.E. PRAKASH INDUSTRIES LTD. AN D RENEWABLE ENERGY SYSTEM LTD., THE GROUND NOS. 1, 2.1 AND 2.2 ARE THUS ALLO WED FOR STATISTICAL PURPOSES. VIDE GROUND NOS. 3.1, 3.2, 4, 5.1 AND 5.2 ALTERNATIVE P LEA HAVE BEEN RAISED, WHICH IS CONSEQUENTIAL IN NATURE TO THE ISSUE RAISED IN GROU ND NOS. 1, 2.1 & 2.2. IN VIEW OF OUR FINDING IN GROUND NO.1, 2.1 AND 2.2 WHICH HAS B EEN SET ASIDE FOR FRESH ADJUDICATION BEFORE THE LD CIT(A), THE LD. CIT(A) IS DIRECTED TO CONSIDER AND ADJUDICATE THESE ALTERNATIVE GROUNDS RAISED BEFORE US IN VIEW OF HIS FINDING ON GROUND NOS. 1, 2.1 AND 2.2. THUS, THE REMAINING GR OUNDS ARE ALSO SET ASIDE TO THE FILE OF THE LD. CIT(A). THESE GROUNDS ARE THUS ALL OWED FOR STATISTICAL PURPOSES. 17. CONSEQUENTLY, APPEAL IS ALLOWED FOR STATISTICA L PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON OCT OBER, 2010 SD/- SD/- (D. KARUNAKARA RAO) (I.C. SUDHIR) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE DATED THE 28TH OCTOBER , 2010 ITA NO. 1083/PN/2004 KIRLOSKAR PNEUMATIC CO. LTD. (A.Y. 1996-97) , 12 THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 28-10- 2010 SD/- SD/- (G.S. PANNU) (I.C. SUDHIR) A.M. J.M. US COPY OF THE ORDER IS FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A)- I, PUNE 4. CIT CONCERNED, PUNE 5. D.R. ITAT A BENCH 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, PUNE BENCHES, PUNE