The DCIT, Circle-8, Ahmedabad V. The Sandesh Limited, Ahmedabad

ITA 2738/AHD/2006

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 8998 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 16-09-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 08-12-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALOK JOHRI
• Assessee Lawyers: R C SHAH
• Keywords: Business income; Depreciation; Business expenditure; Question of law; Avoidance of tax; Commercial expediency; Sham transactions; Revenue expenditure; Capital expenditure; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI H.L. KARWA, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING: 16.09.09 DRAFTED ON:17.09.0 9 ITA NO.2738/AHD/2006 ASSESSMENT YEAR : 2003-2004 D.C.I.T., CIRCLE-8 4 TH FLOOR, AJANTA COMM. CENTRES, A WING, ASHRAM ROAD, AHMEDABAD. VS. THE SANDESH LTD. SANDESH BHAVAN, LAD SOCIETY ROAD, VASTRAPUR GAM, AHMEDABAD. PAN/GIR NO. : AAACT 5730 D (APPELLANT) .. (RESPONDENT) ITA NO.2400/AHD/2006 ASSESSMENT YEAR : 2003-2004 THE SANDESH LTD. SANDESH BHAVAN, LAD SOCIETY ROAD, VASTRAPUR GAM, AHMEDABAD-380 015 VS. ASST. C.I.T., CIRCLE-8 AHMEDABAD. PAN/GIR NO. : AAACT 5730 D (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI ALOK JOHRI CIT DR RESPONDENT BY: SHRI R.C.SHAH O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THERE ARE THE CROSS APPEALS FILED BY THE REVENUE AND ASSESSEE AGAINST THE ORDER OF THE LD.CIT(APPEALS)-XIV, AHMEDABAD DA TED 18.09.2006. ITA NO.2738/AHD/2006 & ITA/AHD/2006 THE SANDESH LTD. ASST.YEAR -2003-04 - 2 - 2. GROUND NO.1 OF THE REVENUES APPEAL RELATES TO D ELETING THE DISALLOWANCE OF DEPRECIATION OF RS.1,77,79,202/- IN RESPECT OF PLANT AND MACHINERY. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNED ASSESSING OFFICER DISALLOWED DEPRECATION OF RS.1,77,79,202/- IN RESPE CT OF PLANT AND MACHINERY PURCHASED UNDER SALE & LEASE BACK TRANSACTION WITH RAJASTHAN STATE ELECTRICITY BOARD FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 1996- 97 AND 1997-98. 4. IN APPEAL BEFORE THE LEARNED COMMISSIONER OF INC OME TAX(APPEALS), THE ASSESSEE SUBMITTED THAT THE LEARNED ASSESSING OFFI CER MADE DISALLOWANCE ON THE BASIS THAT IN EARLIER ASSESSMENT YEAR 1996-97 I T WAS HELD THAT SALE AND LEASE BACK TRANSACTION WAS NOT GENUINE AND DEPRECIA TION WAS NOT ALLOWABLE. AS THE FACTS OF THIS YEAR ARE THE SAME, THE DEPRECIATI ON WAS DISALLOWED. IT WAS SUBMITTED THAT IN EARLIER ASSESSMENT YEAR THE ASSES SEE WAS ALLOWED RELIEF BY LEARNED COMMISSIONER OF INCOME TAX(APPEALS) FOR ASS ESSMENT YEAR 1997-98 TO 2001-02. AS THE FACTS ARE SIMILAR, THE DEPRECIATIO N SHOULD BE ALLOWED. 5. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ALLOWED THE CLAIM FOR DEPRECIATION TO THE ASSESSEE OBSERVING THAT HIS PREDECESSOR HAS ALLOWED RELIEF IN ASSESSMENT YEAR 1997-98 TO 2001-02 AND AL SO IN ASSESSMENT YEAR 2002-03 HOLDING THAT THE LEASE AGREEMENT WAS GENUIN E AND DIRECTED THE LEARNED ASSESSING OFFICER TO ALLOW RELIEF. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED O N THE ORDER OF THE LEARNED ASSESSING OFFICER. ITA NO.2738/AHD/2006 & ITA/AHD/2006 THE SANDESH LTD. ASST.YEAR -2003-04 - 3 - 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE FILED BE FORE US CONSOLIDATED ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE I N SL. NO. ITA NO. ASSTT. YEAR APPELLANT RESPONDENT 1. 1946/AHD/2000 1996- 97 THE SANDESH LIMITED, SANDESH BHAVAN, NEAR VASTRAPUR GAM, LAD SOCIETY ROAD, VASTRAPUR, AHMEDABAD -VS- THE JT. C.I.T (ASSTT), AHMEDABAD 2- 3. 951/AHD/2002 1033/AHD/2002 1997- 98 -DO- ACIT, CIRCLE - 8, AHMEDABAD -VS- ACIT, CIRCLE-8, AHMEDABAD THE SANDESH LIMITED 4- 5. 952/AHD/2002 1034/AHD/2002 1998- 99 THE SANDESH LTD. ACIT, CIRCLE - 8, ABD -VS- -VS- -DO- THE SANDESH LTD. 6. 3750/AHD/2002 1999- 00 ACIT, CIR-8, ABD -VS- -DO- 7. 4401/AHD/2003 2000- 01 -DO- -VS- -DO- 8. 3534/AHD/2004 2001- 02 -DO- -VS- -DO- 9. 2325/AHD/2005 2002- 03 -DO- -VS- -DO- 10- 11. 1998/AHD/ 2008 C.O 133/AHD/2008 (A/O. ITA NO.1998/AHD/2008 2005- 06 -DO- THE SANDESH LTD. -VS- -DO- ACIT, CIR-8, ABD ITA NO.2738/AHD/2006 & ITA/AHD/2006 THE SANDESH LTD. ASST.YEAR -2003-04 - 4 - DATED 09.01.2009 AND SUBMITTED THAT THE TRIBUNAL HA S ALLOWED THE CLAIM OF DEPRECIATION TO THE ASSESSEE. THEREFORE, FOLLOWING THE SAME THE APPEAL OF THE ASSESSEE SHOULD BE ALLOWED. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE, THE ASSESSEE CLAIMED DEPRECIATION OF RS.1,77,79,202/- I N RESPECT OF PLANT AND MACHINERY PURCHASED UNDER THE SALE AND LEASE BACK T RANSACTION WITH RAJASTHAN STATE ELECTRICITY BOARD, WHICH WAS DISALLOWED BY TH E LEARNED ASSESSING OFFICER FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 1996-97 AND ALLOWED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) FOLLOWING HIS O RDER FOR ASSESSMENT YEAR 1997-98 TO 2001-02. THE ASSESSEE HAS FILED COPY CON SOLIDATED ORDER OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITSELF DATED 9 .01.2009, WHEREIN THE CLAIM FOR DEPRECATION WAS ALLOWED TO THE ASSESSEE FOR ASS ESSMENT YEAR 1996-97, 1997-98, 1998-99, 2000-01, 2001-02, 2002-03. WHILE DOING SO THE TRIBUNAL OBSERVED AS UNDER:- 5. THE NEXT COMMON ISSUE IN ASSESSSEES APPEAL IN ITA NO.1946/AHD/2000 AS WELL AS REVENUES IN ITA NO.1033-1034/AHD/2002, ITA NO.3534/AHD/2004 , ITA NO.2325/AHD/2005 & ITA NO.4401/AHD/2003 IS AS REGARDS TO GENUINENESS OF SALE AND LEASE BACK OF TRANSACTIONS ENTERED WITH RSEB AN D CLAIM OF DEPRECIATION THEREOF. WE WILL DISCUSS THE FACTS FROM ITA NO.1946/AHD/2000 , WHICH ARE THAT THE ASSESSEE HAD DURING THE YEAR ENTERED INTO SALE AND LEASE BACK TRANSACTIONS WITH RAJASTHAN SATE ELECTRICITY BOARD (RSEB IN SHORT) RE GARDING TRANSFORMERS. THE DETAILS OF THE TRANSFORMERS ARE AS UNDER:- DISTRIBUTION TRANSFORMERS 3263 NOS. RS. 8,57,9 5,000/- (16 KVA TO 100 KVA) ITA NO.2738/AHD/2006 & ITA/AHD/2006 THE SANDESH LTD. ASST.YEAR -2003-04 - 5 - POWER TRANSFORMER 2388 NOS. RS. 1,71,44,000/- (1.6 MVA TO 6.5 MVA) RS.10,29,37,000 ============= THE ASSESSEE HAS CLAIMED DEPRECIATION @ 25% ON THE ABOVE AMOUNT OF RS.10,29,37,000/- OF RS.2,57,34,250/-. THE ASSESSE E HAD ENTERED INTO TRANSACTION FOR PURCHASE OF TRANSFORMERS FROM RSEB. THE SAME TRANS FORMERS WERE LEASED BACK TO RSEB AND PURCHASE AS WELL AS LEASE TRANSACTION HAVE TAKEN PLACE ON THE SAME DAY. THE FOLLOWING SET OF EVENTS TOOK PLACE:- (I) RSEB REVALUED ITS EXISTING ASSETS AND FORMED T HEM IN VARIOUS BLOCKS AS PER THE DEPRECIATION AVAILABLE ON THESE ASSETS. (II) SALE AGREEMENT WAS ENTERED BETWEEN RSEB AND TH E ASSESSEE FOR THE EQUIPMENT ON 30 TH SEPTEMBER, 1995 AT A PURCHASE PRICE OF RS.10,29,37 ,000/-. (III) PAYMENT IN PART WAS MADE BY THE ASSESSEE TO R SEB. (IV) THE ASSETS CONTINUED TO REMAIN AT THE SAME PL ACE WHERE THEY WERE INSTALLED EVEN AFTER THE SALE AGREEMENT. (V) ANOTHER AGREEMENT DTD. 30 TH SEPTEMBER, 1995 WAS ENTERED BETWEEN THE ASSESSEE AND RSEB FOR A PERIOD OF 96 MONTHS COMMENC ING FROM 30 TH SEPTEMBER, 1995 PERTAINING TO LASING OF THESE ASSET S BACK TO RSEB ON PAYMENT OF LEASE RENTS AS PER ANNEXURE A TO SCHEDUL E OF THE AGREEMENT. (VI) RSEB HAS GIVEN A SECURITY TO THE ASSESSEE WHIC H WAS ACTUALLY THE ADJUSTMENT DONE TO THE SALE PRICE WHICH WAS PAID IN PART BY THE ASSESSEE. (VII) THE ASSESSEE ISSUED AN AUTHORITY LETTER TO SE CRETARY RSEB AND AN IRREVOCABLE POWER OF ATTORNEY IN FAVOUR OF SECRETAR Y, RSEB. THESE DOCUMENTS ARE PURPORTEDLY FOR END OF THE LEASE PERIOD AND ALL OWS THE SECRETARY, RSEB TO SELL THE ASSET TO ANY PERSON INCLUDING THE RSEB AT THE END OF LEASE PERIOD AT MINIMUM PRICES OF RS.4,00,00,000/-. (VIII) RSEB WAS ALLOWED TO RETAIN ANY SURPLUS OBTAI NED BY THE SALE OF THE ASSET AS A REWARD OF GOOD MAINTENANCE OF THE EQUIPMENT. THE ASSESSING OFFICER EXAMINED ALL THE EVIDENCES EI THER SUPPLIED BY THE ASSESSEE OR COLLECTED THROUGH INVESTIGATION. HE ALSO CONSIDERE D VARIOUS CASE LAWS RELIED ON BY THE ASSESSEE AND ANALOGIZED THE TRANSACTIONS INVOLVED I N THE CASE AND AFTER EXAMINATION OF ALL THE DETAIL, THE AO. OBSERVES VIDE PARA-3.14 OF THE ASSESSMENT ORDER THAT THE PURCHASE OF ASSET BY ASSESSEE AND LEASE TO RSEB IS ONLY A PAPER TRANSACTION AND THE OWNERSHIP OF THE ASSET TRANSFERRED TO ASSESSEE WAS RE-TRANSFERRED TO RSEB THROUGH ITA NO.2738/AHD/2006 & ITA/AHD/2006 THE SANDESH LTD. ASST.YEAR -2003-04 - 6 - THE AGREEMENT WHICH IS IN THE NATURE OF HIRE PURCHA SE. THE AO THEREFORE HELD THAT IT WAS ONLY A FINANCING TRANSACTION. IN VIEW OF THE I RREVOCABLE POWER OF ATTORNEY GIVEN BY THE ASSESSEE IN FAVOUR OF SECRETARY, RSEB AND IN VI EW OF THE AUTHORITY LETTER GIVEN TO RSEB TO SELL THE ASSET AND TO RETAIN THE SURPLUS, T HE AO HELD THAT THE AGREEMENT UNDER CONSIDERATION DOES NOT REMAIN TRULY A LEASE A GREEMENT, BUT ENTERS INTO THE REALM O HIRE PURCHASE AND IN SUCH CASES THE TRANSAC TION MAY BE IN THE NATURE OF FINANCING. AFTER MAKING A DETAILED ANALYSIS OF HIR E PURCHASE AND OTHER SIMILAR TRANSACTIONS, THE AO HELD THAT THE AGREEMENT BETWEE N THE ASSESSEE AND RSEB THOUGH STATED TO BE OF LEASE IS IN FACT A HIRE PURC HASE TRANSACTION AND IN THE NATURE FINANCING TRANSACTION. HENCE HE DISALLOWED THE CLA IM OF THE ASSESSEE TO DEPRECIATION. ON THE OTHER HAND THE ASSESSEE SUBMITS THAT THE AO HAS ERRED IN HOLDING WITHOUT ANY BASIS, REASONING AND EVIDENCES THAT THE SALE AND LE ASE BACK TRANSACTION ENTERED INTO BY THE ASSESSEE WITH THE RSEB WAS IN FACT A FINANCI NG TRANSACTION AND IN THE NATURE OF HIRE PURCHASE AND THEREBY FURTHER ERRED IN DISALLOW ING THE CLAM OF DEPRECIATION OF RS.2,57,34,250/-. IT IS SUBMITTED THAT THE VALIDIT Y OF THE SALE AND LEASE BACK TRANSACTIONS HAS BEEN ACKNOWLEDGE / RECOGNIZED BY V ARIOUS TRIBUNALS / HIGH COURTS AND EVEN THE APEX COURT OF THE LAND AND EVEN THE IN COME-TAX ACT WHEN IT INSERTED THE EXPLANATION 4A TO SECTION 43 W.E.F. 1-10-1996. IT IS SUBMITTED THAT THE AO HAS FAILED TO APPRECIATE THE STRONG COMMERCIAL JURISDICTION FO R THE ENTIRE TRANSACTION TO WHICH NONE ELSE BUT A STATE GOVERNMENT UNDERTAKING WAS A PARTY. IT IS SUBMITTED THAT IN VIEW OF THE FACTS OF THE CASE AND VARIOUS JUDICIAL DECISIONS, THE TRANSACTION ENTERED INTO BY THE ASSESSEE WITH RSEB CANNOT BE HELD TO BE A FINANCIAL OR EVEN HIRE PURCHASE AND THEREFORE THE ASSESSEE BE ALLOWED THE DEPRECIATION OF RS.2,57,34,250/-. 6. IN VIEW OF THE ABOVE FACTS, THE LD. COUNSEL FOR THE ASSESSEE, SHRI SOPARKAR STATED THAT THIS ISSUE IS SQUARELY COVERED BY THE D ECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V. GUJARAT GAS CO. LTD. IN TAX APPEAL NO.444 OF 2008 DATED 10-09-2008, WHEREIN THE HON'BLE HIGH COURT HELD AS UNDER:- 4. THE LEARNED ADVOCATE FOR THE RESPONDENT-ASSESSE E APPEARING ON CAVEAT WAS DIRECTED TO PLACE ON RECORD THE TREATMENT METED OUT TO THE LEASE RENT RECEIVED BY RESPONDENT-ASSESSEE, THE LESSER. IN CO MPLIANCE WITH THE SAID DIRECTION COMPILATION HAS BEEN PLACED ON RECORD. T HE COMPILATION SUBSTANTIATES THE FINDING OF FACT RECORDED BY THE T RIBUNAL THAT THE ASSESSEE HAS ITA NO.2738/AHD/2006 & ITA/AHD/2006 THE SANDESH LTD. ASST.YEAR -2003-04 - 7 - SHOWN THE LEASE RENT RECEIVED FROM RAJASTHAN STATE ELECTRICITY BOARD AS ITS BUSINESS INCOME. 5. IN RELATION TO THE TRANSACTION, AFTER REFERRING TO AN EARLIER ORDER OF THE TRIBUNAL, THE TRIBUNAL IN THE PRESENT CASE HAS RECO RDED THE FOLLOWING FINDINGS:- 10.9 RESPECTFULLY FOLLOWING THE AFORESAID CASE, WE FIND THAT IN THE ASSESSEE BEFORE US THE INVOICES ARE IN THE NAME OF THE ASSESSEE AS IS CLEAR COPY OF THESE INVOICES APPEARING AT PAGES 59 TO 63 OF THE PAPER BOOK. SIMILAR TRANSACTION WAS RAJASTHAN HIGH COURT IN THE CASE OF RSEB (SUPRA), THEREFORE, TRANSACTION IN QUESTION IS HELD TO BE GENUINE ONE AND, THEREFORE, WE SET ASIDE THE ORDER OF THE C IT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW DEPRECIATION TO THE ASSE SSEE. 6. WITH REFERENCE TO DECISION OF RAJASTHAN HIGH COU RT AS APPEARING IN THE ORDER OF TRIBUNAL, THE SAME RELATES TO THE DECISION REPORTED IN (2006) 204 CTR (RAJ) 415 IN THE CASE OF CIT VS. RAJASTHAN SATE ELE CTRICITY BOARD. THE QUESTION BEFORE THE RAJASTHAN HIGH COURT WAS IN REL ATION TO DISALLOWANCE OF PAYMENT OF LEASE RENTALS ON THE TRANSACTION OF SALE -CUM-LEASE BACK AGREEMENT AND RAJASTHAN HIGH COURT HAS FOUND THAT THE TRIBUNA L HAD RIGHTLY APPRECIATED THE FACTS AND CORRECT FOUND THE TRANSACTION TO BE G ENUINE AND SUCH A FINDING COULD NOT BE TREATED TO BE PERVERSE. 7. ADMITTEDLY, THE TRANSACTION IN QUESTION WHICH TH E HIGH COURT OF RAJASTHAN WAS CALLED UPON TO DEAL WITH IS THE SAME TRANSACTIO N WHICH HAS BEEN FOUND TO BE GENUINE BY THE TRIBUNAL IN THE PRESENT CASE. TH E LEASE RENTAL PAID BY RAJASTHAN STATE ELECTRICITY BARD HAS BEEN FOUND BY RAJASTHAN HIGH COURT TO BE ALLOWABLE DEDUCTION AS THE TRANSACTION GENUINE. CO RRESPONDINGLY, IN HANDS OF THE ASSESSEE-COMPANY, THE SAID LEASE RENTAL HAS BEE N TAXED AS BUSINESS INCOME AND THE SAME HAS NOT BEEN DISTURBED BY THE A SSESSING OFFICER DESPITE HAVING INITIATED ACTION U/S.147 OF THE ACT FOR TREA TING THE TRANSACTION AS A NON- GENUINE TRANSACTION. 8. IN THE AFORESAID FACTS AND CIRCUMSTANCES OF THE CASE WHETHER THE TRANSACTION OF LEASING OUT ELECTRICAL EQUIPMENTS TO RAJASTHAN E LECTRICITY BOARD IS GENUINE OR NOT IS BASED ON APPRECIATION OF EVIDENCE ON RECO RD AND FOUND BY THE TRIBUNAL BY REFERRING TO THE VARIOUS DOCUMENTS LIKE INVOICES ETC. IN ABSENCE OF ANY EVIDENCE TO SHOW ANYTHING TO THE CONTRARY NO LE GAL INFIRMITY EXISTS IN THE IMPUGNED ORDER OF THE TRIBUNAL SO AS TO GIVE RISE T O ANY QUESTION OF LAW, MUCH LESS A SUBSTANTIAL QUESTION OF LAW AS PROPOSED OR O THERWISE. THE APPEAL IS ACCORDINGLY DISMISSED. ON THE OTHER HAND, THE LD. DR CONCEDED THE POSITION . 7. WE FIND FROM THE ABOVE FACTS THAT THE TRANSACTIO N OF SALE & LEASE BACK AND DEPRECIATION THEREON HAS ALREADY BEEN ALLOWED ON EX ACTLY SIMILAR FACTS BY THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT GAS CO. L TD. (SUPRA) AND SIMILARLY THIS ITA NO.2738/AHD/2006 & ITA/AHD/2006 THE SANDESH LTD. ASST.YEAR -2003-04 - 8 - TRIBUNAL HAS ALREADY DECIDED THIS ISSUE ON THE ASSE TS OF RSEB IN THE CASE OF GUJARAT GAS CO. LTD. UNIMED TECHNOLOGIES LTD. VS. DCIT(2008 ) 73 ITD 150. IN THIS CASE, THE HON'BLE ITAT HAS MADE THE FOLLOWING OBSERVATIONS:- SHAM TRANSACTION IS ONE IN WHICH A PURPORTS TO SEL L HIS PROPERTY TO B WITHOUT INTENDING THAT HIS TITLE IS CEASED OR PASSE D TO B AND FOR TRANSACTION NO CONSIDERATION IS PAID AT ALL. HOWEV ER, IN THE INSTANT CASE IT WAS UNDISPUTED THAT THE CONSIDERATION HAD BEEN P AID BY B TO RSEB ON THE EXECUTION OF THE AGREEMENT OF SALE. THE ASS ESSEE ALSO PAID A SUBSTANTIAL SUM, VIZ. RS.45,67,270 TO B AGAINST THE HIRE PURCHASE MANAGEMENT FEES AND THE INSTALLMENT OF HIRE PURCHAS E WERE FIXED FOR WHICH POST DATED CHEQUES SPANNING OVER A PERIOD OF THREE YEARS WERE GIVEN BY THE ASSESSEE TO B. IN THIS VIEW OF THE MAT TER ALTHOUGH THE TRANSACTIONS WERE PRE-PLANNED AND PRE-ORDAINED THES E COULD NOT BE CALLED SHAM TRANSACTIONS AS CONSIDERATIONS WERE PAI D BY THE ASSESSEE TO B AND FROM B TO RSEB. EVERY ASSESSEE HAS LEGAL R IGHTS TO SO ARRANGE HIS AFFAIRS AS TO REDUCE THE BURDEN OF TAXA TION TO A MINIMUM AMOUNT. AVOIDANCE OF TAX IS NOT TAX EVASION AND IT CARRIES NO IGNOMINY WITH IT, FOR IT IS SOUND LAW AND, CERTAINLY, NOT BA D MORALITY, FOR ANYBODY TO SO ARRANGE HIS AFFAIRS TO PAY MINIMUM POSSIBLE TAX. IT WAS ALSO PERTINENT TO NOTE THAT THE LESSEE IN THIS CASE WAS RSEB WHICH IS A GOVERNMENT OF RAJASTHAN CORPORATION AND TO ACCEPT THAT GOVERNMENT OF RAJASTHAN WOULD BE A PART TO SHAM TRA NSACTION WAS UNTENABLE. IF ANYTHING IT ESTABLISHED THAT THE SALE AND LEASE BACK TRANSACTION WAS A GENUINE TRANSACTION AS IT WAS ENT ERED INTO A PUBLIC OFFER IN VARIOUS NEWSPAPERS INCLUDING ECONOMIC TIME S AND RAJASTHAN GOVERNMENT, FINALLY DEEMED IT NECESSARY IN PUBLIC I NTEREST TO EXEMPT THE TRANSACTION FROM SALES TAX. FOR ALL THE AFORES AID REASONS THE DEPARTMENTAL AUTHORITIES WERE NOT JUSTIFIED IN HOLD ING THAT THE TRANSACTIONS WERE SHAM TRANSACTIONS. IN THE PRESENT CASE ALSO THE TRANSACTION UNDER CONS IDERATION IS PURCHASE AND LEASE BACK WITH RSEB. THE RSEB WAS IN NEED OF FUND S, AS THE GOVERNMENT HAD STOPPED FUNDING THE UNDERTAKING AND HAD DESIRED THAT THE UNDERTAKING SELF-FINANCE ITS OPERATIONS. THE RAJASTHAN STATE E LECTRICITY BOARD, A GOVERNMENT OF RAJASTHAN UNDERTAKING, THEREFORE ISSU ED AS ADVERTISEMENT SEEKING LEASE FINANCE AGAINST EXISTING ASSETS OF RS EB. SUCH A TRANSACTION HAS NOT BEEN ACCEPTED BY HON'BLE ITAT IN THE CASE R EFERRED ABOVE AS SHAM TRANSACTION. THEREFORE, FOLLOWING THE SAME ARGUME NT, I HOLD THAT THE AO WAS NOT JUSTIFIED IN TREATING THE TRANSACTIONS BETWEEN THE ASSESSEE AND RSEB AS PAPER TRANSACTIONS. 22. THE NEXT QUESTION WHICH NEEDS DECISION IS WHETH ER THE AGREEMENT BETWEEN THE ASSESSEE AND RSEB STATED TO BE OF LEASE IS IN THE NATURE OF HIRE PURCHASE AS HELD BY THE AO. THE VITAL DIFFERENCE BE TWEEN A LEASE TRANSACTION AND A HIRE PURCHASE TRANSACTION IS THAT IN THE FORM ER, THE OWNERSHIP OF THE ASSET REMAINS WITH THE FIRST PARTY, WHILE IN THE 2 ND CASE, THE OWNERSHIP IS ITA NO.2738/AHD/2006 & ITA/AHD/2006 THE SANDESH LTD. ASST.YEAR -2003-04 - 9 - TRANSFERRED TO THE 2 ND PARTY ON FULFILLMENT OF TERMS OF THE AGREEMENT. I N THE INSTANT CASE, THE ASSESSEE HAS MADE A LEASE AGREEME NT WITH THE RSEB. BUT THE ASSESSEE HA ALSO GIVEN AN AUTHORITY LETTER TO S ECRETARY, RSEB AND AN IRREVOCABLE POWER OF ATTORNEY IN FAVOUR OF SECRETAR Y, RSEB FOR THE DISPOSAL OF THE AFORESAID LEASED ASSET ALLOWING THE SECRETARY, RSEV TO SELL THE ASSET TO ANY PERSON INCLUDING RSEB AT THE END OF HE LEASE PE RIOD. THE AUTHORITY ALSO AUTHORIZES RSEB TO RETAIN ANY SURPLUS OBTAINED BY T HE SALE OF THE ASSETS. BY GIVING THIS AUTHORITY LETTER AND POWER OF ATTORNEY, IT IS ENSURED THAT AT THE END OF THE LEASED PERIOD, THE ASSET IS GOING TO BE TRAN SFERRED TO RSEB. THUS, IN MY VIEW THE TRANSACTION UNDER CONSIDERATION LOSSES ITS CHARACTER OF BEING LEASE TRANSACTION AND ADOPTS THE NATURE OF HIRE PURCHASE. IN SHAMSHER ALI ABDUL RUSSAIN VS. CIT, NAGPUR HIGH COURT WAS CONCERNED WI TH A QUESTION OF CLAIM OF DEPRECIATION OF MOTOR LORRIES WHICH HAD BEEN DISPOS ED OFF ON HIRE PURCHASE SYSTEM. IN THAT CASE THE HIRER CLAIMED THE DEPRECIA TION BUT WAS DISALLOWED ON THE GROUND THAT HIRE PURCHASE SYSTEM IS NOTING BUT A SALE OR AN AGREEMENT TO SELL WITH AN EXTENDED PERIOD OF INSTALLMENTS. IN SR IANGHACHARGULU VS. CIT WHICH WAS ALSO A CASE IN RESPECT OF A BUS BOUGHT ON HIRE PURCHASE AGREEMENT BY THE ASSESSEE, IT WAS HELD THAT THE TRANSACTION E VIDENCED BY THE HIRE PURCHASE AGREEMENT WAS NOTHING MORE THAN A LOAN ON THE SECURITY OF THE BUS. THEREFORE, I HOLD THAT THE LEASE AGREEMENT OF THE A SSESSEE WITH RSEB WAS NOT A LEASE SIMPLEST OR BUT WAS A TRANSACTION IN THE NA TURE OF HIRE PURCHASE. IT MAY ALSO BE CONSIDERED AS TRANSACTION FOR SALE OF THE P ROPERTY BY INSTALLMENTS. IN VIEW OF THE ABOVE POSITION, I AM OF THE VIEW THAT I T IS NOT A CASE OF PURCHASE AND LEASE BACK BUT IT IS A CASE OF PURCHASE AND SAL E BACK OF THE ASSET. 23. THE AO. HAS DISALLOWED THE CLAIM OF DEPRECIATI ON RELYING ON THE CIRCULAR NO.9 OF 1943 ISSUED BY CBDT ON 23/2/1943. THE AO. I S BOUND BY LAW TO FOLLOW THE CIRCULAR ISSUED BY THE CBDT. THEREFORE, THERE IS NO INFIRMITY IN THE ORDER IN THIS REGARD. IN A HIRE PURCHASE AGREEMENT WHICH MA TURES INTO A SALE, THE PROPERTY PASSES ON PAYMENT OF THE LAST INSTALLMENT. HOWEVER, DURING THE PERIOD OF HIRE, THE PURCHASER IS ALSO PAYING THE PR ICE, SO VIRTUALLY IT IS A SALE OF INSTALLMENTS. THE CIRCULAR OF THE CENTRAL BOARD OF DIRECT TAXES ONLY SERVE TO OVERCOME A GREATER DIFFICULTY IN COMPUTING HOW THE VARIOUS ALLOWANCES HAVE TO BE GIVEN TO THE ASSESSEE. IF THE PAYMENTS TOWARDS THE HIRE PURCHASES ARE NOT TREATED AS BEING CAPITAL PAYMENTS, THEY WILL HAVE T O BE ALLOWED AS REVENUE PAYMENTS BECAUSE THE PAYMENTS ARE ACTUALLY FOR BUSI NESS PURPOSES AND YET IF THEY ARE NOT TREATED AS CAPITAL PAYMENTS, THEY WILL NECESSARILY BE AMOUNTS EXPENDED TOWARDS THE CARRYING OUT OF THE BUSINESS. ON THE OTHER HAND, IF THE PROPERTY PASSES AT THE TIME OF LAST INSTALLMENT, TH EN THE ENTIRE REVENUE PAYMENT WILL BE TRANSFERRED INTO A CAPITAL PAYMENT AT THAT STAGE. TO MEET THIS OBVIOUS DIFFICULTY, THE CBDT ISSUE CIRCULARS AT VAR IOUS TIMES DIRECTING THAT ASSETS PURCHASED ON HIRE PURCHASE BASIS SHOULD BE T REATED AS BELONGING TO THE ASSESSEE. THIS POSITION HAS BEEN CONTINUING FOR A VERY LONG TIME. CIRCULAR NO.9 DATED MARCH, 23, 1943 ISSUED BY CBDT DIRECTED THAT THE PERIODICAL PAYMENTS SHOULD BE TREATED AS:- (A) THE CONSIDERATION FOR HIRE PURCHASE TO BE ALLOW ED AS A REVENUE DEDUCTION AND (B) A PAYMENT ON ACCOUNT OF PURCHASE TO BE TREATED AS CAPITAL LAY OUT. ITA NO.2738/AHD/2006 & ITA/AHD/2006 THE SANDESH LTD. ASST.YEAR -2003-04 - 10 - IT IS ALSO MENTIONED IN THAT CIRCULAR THAT THE DEPR ECIATION SHOULD BE ALLOWED ON THE INITIAL VALUE I.E. THE AMOUNT FOR WHICH THE HIR E OBJECT COULD BE PURCHASED IN CASH ON THE DATE OF AGREEMENT. THE SAME WAS REITERA TED BY THE CENTRAL BOARD OF REVENUE, IN ITS CIRCULAR DATED JUNE, 26, 1959. THE CENTRAL BOARD OF REVENUE AGAIN REITERATED ITS INSTRUCTION ON NOVEMBE R, 1962 AND AGAIN ON JULY, 1963. 24. I HAVE CAREFULLY CONSIDERED THE APPELLANTS ARG UMENT THAT THE SAID CIRCULAR IS A BENEVOLENT CIRCULAR AND CANNOT RESTRICT THE AP PELLANTS LAWFUL CLAIM OF DEPRECIATION. IF THE APPELLANTS ARGUMENT IS ACCEPT ED THEN IN EVERY CASE OF HIRE PURCHASE TRANSACTION, THE DEPRECIATION WOULD BE ADM ISSIBLE TO BOTH PARTIES TO ONE ON THE BASIS OF LEGAL OWNERSHIP AND TO THE OTHE R ON THE BASIS OF BENEVOLENT CIRCULAR. THIS CANNOT BE THE PURPOSE OF ISSUING THE CIRCULAR. I AM OF THE VIEW THAT THE CIRCULAR ISSUED BY THE BOARD IS CLARIFICAT ORY IN NATURE AND NOT OF BENEVOLENT CHARACTER. THE STAND TAKEN BY THE BOARD HAS BEEN UPHELD IN VARIOUS JUDICIAL DECISIONS. IN THE CASE OF DELHI A DDL CIT OF L.T. VS. GENERAL INDUSTRIES CORPORATIONS, 155 ITR 430, IT WAS CONTE NDED BEFORE THE DELHI HIGH COURT THAT THE DEPRECIATION IS ADMISSIBLE TO THE OW NER OF THE ASSET AND NOT TO THE USER OF THE ASSET. BUT THE HON'BLE HIGH COURT REJECTED THE CONTENTION AND DIRECTED THE AO. TO DISPOSE THE ASSESSEES CLAIM IN THE LIGHT OF CBDT CIRCULAR DATED 26/6/1959 AND 15/7/1963. THE TRANSACTION UNDE R CONSIDERATION IS BASICALLY A FINANCING TRANSACTION AND THE AGREEMENT S REGARDING OWNERSHIP OF THE ASSETS HAVE BEEN MADE AS A SECURITY. THEREFORE , I HOLD THAT THE AO. WAS JUSTIFIED IN NOT ACCEPTING THE CLAIM OF DEPRECIATIO N BY FOLLOWING CIRCULAR NO.9 OF 1943 ISSUED BY CBDT ON 23/3/1943. IN THIS CASE, IT MAY ALSO BE ARGUED THAT RSEB HAS AGREED NOT TO CLAIM DEPRECIATION, SO IT SH OULD BE ALLOWED TO THE ASSESSEE. HOWEVER, I AM OF THE VIEW, THAT AN AGREE MENT BETWEEN TWO PARTIES WITH THE PURPOSE OF SHIFTING TAX LIABILITY CANNOT B E CONSIDERED A JUSTIFICATION FOR DECIDING A QUESTION OF LAW. I, THEREFORE, REJECT TH IS GROUND OF APPEAL. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE AR E OF THE VIEW THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND A GAINST THE REVENUE AS THE TRANSACTION OF SALE & LEASE BACK WITH RSEB ON SIMIL AR FACT HAS BEEN TREATED AS GENUINE BY THE HON'BLE JURISDICTIONAL HIGH COURT AS WELL AS THE JURISDICTIONAL TRIBUNAL. RESPECTFULLY FOLLOWING THE SAME WE DECIDE THE ISSUE ACCORDINGLY. THE REVENUES APPEALS ON THIS ISSUE ARE DISMISSED A ND THAT OF THE ASSESSEES APPEAL IS ALLOWED. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NO T SHOW ANY GOOD REASON TO NOT TO FOLLOW THE ABOVE QUOTED ORDER OF T HE TRIBUNAL IN ASSESSEES OWN CASE. FACTS BEING IDENTICAL RESPECTFULLY FOLLOW ING THE PRECEDENT, WE CONFIRM THE ORDER OF THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS) ALLOWING THE DEPRECIATION ON PLANT AND MACHINERY U NDER THE SALE AND LEASE ITA NO.2738/AHD/2006 & ITA/AHD/2006 THE SANDESH LTD. ASST.YEAR -2003-04 - 11 - BACK TRANSACTION WITH RAJASTHAN STATE ELECTRICITY B OARD. THUS, THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 10. GROUND NO.2 OF THE APPEAL OF THE REVENUE RELATE S TO DIRECTING THE LEARNED ASSESSING OFFICER TO DELETE THE DISALLOWANC E OF DEPRECIATION ON MOTOR BUSES LEASED OUT TO AHMEDABAD MUNICIPAL CORPORATION @ 40%. 11. THE BRIEF FACTS ARE THAT THE ASSESSEE CLAIM DEP RECIATION OF RS.39,512/- BEING @ 40% ON LEASED VEHICLES. THE LEARNED ASSESSI NG OFFICER FOLLOWING HIS ORDER FOR ASSESSMENT YEARS 1994-95 TO 1997-98 ALLOW ED DEPRECIATION AT NORMAL RATE OF 20% ON LEASED VEHICLES. THUS, THE LEARNED A SSESSING OFFICER DISALLOWED THE DEPRECIATION OF RS.19,774/- AS AGAINST CLAIM OF DEPRECIATION OF RS.39,572/-. 12. IN APPEAL THE LEARNED COMMISSIONER OF INCOME TA X(APPEALS) FOLLOWING ITS ORDER IN ASSESSMENT YEAR 2002-03 ALLOWED DEPREC IATION AT HIGHER RATE OF 40% CLAIMED BY THE ASSESSEE BUSES LEASED OUT TO AMT S. 13. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED ASSESSING OFFICER. 14. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE SUBMITTED THAT DEPRECIATION AT HIGHER RATE OF 40% ON BUSES LEASED TO AMTS WAS ALLOWED TO THE ASSESSEE BY THE TRIBUNAL IN ASSESSEES OWN CASE VIDE CONSOLIDATED ORDER DATED 9.01.2009. THEREFORE, FOLLOWING THE SAME THE GROUND OF THE APPEAL OF THE REVENUE SHOULD BE DISMISSED. ITA NO.2738/AHD/2006 & ITA/AHD/2006 THE SANDESH LTD. ASST.YEAR -2003-04 - 12 - 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE, THE ASSESSEE CLAIMED DEPRECIATION OF RS.39,512/- AT HI GHER RATE OF 40% ON BUSES LEASED TO AMTS, WHICH WAS ALLOWED BY THE LEARNED AS SESSING OFFICER AT THE NORMAL RATE OF 20%, THEREBY ALLOWING DEPRECIATION O F RS.19,774/- AND DISALLOWING BALANCE DEPRECIATION OF RS.19,775/-. I N APPEAL THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ALLOWED THE DEP RECIATION AT HIGHER RATE OF 40% TO THE ASSESSEE FOLLOWING HIS ORDER PASSED I N ASSESSMENT YEAR 2002-03. WE FIND THAT THE TRIBUNAL VIDE ITS CONSOLIDATED ORD ERS PASSED IN THE APPEALS OF THE ASSESSEE DATED 9.01.2009 ALLOWED THE CLAIM OF T HE ASSESSEE BY OBSERVING AS UNDER:- 10. THE NEXT COMMON ISSUE IN REVENUES APPEAL IN ITA NO.4401/AHD/2003, ITA NO.2325/AHD/2005, ITA NO.3534 /AHD/2004, ITA NO.1033-1034/AHD/2002 AND ITA NO.1998/AHD/2008 IS AS REGARDS TO DISALLOWANCE OF HIGHER DEPRECIATION ON MOTOR BUSES LEASED OUT TO AHMEDABAD MUNICIPAL TRANSPORT SERVICE. 11. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE FIL ED A COPY OF JUDGMENT OF THE HON'BLE APEX COURT IN THE CASE OF CIT V. GUPTA GLOBAL EXIM P. LTD. (2008) 305 ITR 132 (SC) AND STATED THAT THE ISSUE IS SQUAR ELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ON THE LD. DR CO NCEDED THE POSITION. WE HAVE GONE THROUGH THE HON'BLE APEX COURT JUDGMEN T AND FOUND THAT THE HON'BLE APEX COURT HAS HELD (FROM HEAD-NOTES) AS UN DER:- HELD, SETTING ASIDE THE DECISION OF THE HIGH COURT AND REMANDING THE MATTER FOR FRESH DECISION TO THE COMMISSIONER (APPEALS), THAT A NEAT QUESTION OF LAW AROSE IN THE MATTER. UNDER ITEM (2)(II) OF HEADING III IN APPENDIX I TO THE INCOME-TAX RULES, 1962, THE HIGHER RATE WAS ADMISSI BLE ON MOTOR TRUCKS USED IN A BUSINESS OF RUNNING THEM ON HIRE. THEREFORE, T HE USER OF THE SAME IN THE BUSINESS OF THE ASSESSEE OF TRANSPORTATION WAS THE TEST. MERELY BECAUSE THE INCOME FROM THE LETTING OF THE TRUCKS ON HIRE WAS I NCLUDED IN THE BUSINESS INCOME THE HIGHER RATE WOULD NOT APPLY. THE MATTER HAD TO BE DECIDED ON THE QUESTION AS TO WHETHER THE ASSESSEE WAS IN THE BUSI NESS OF RUNNING THE TRUCKS FOR HIRE. ITA NO.2738/AHD/2006 & ITA/AHD/2006 THE SANDESH LTD. ASST.YEAR -2003-04 - 13 - RESPECTFULLY FOLLOWING THE HON'BLE APEX COURT WE DI SMISS THIS ISSUE OF THE REVENUES APPEALS. 16. THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD N OT SHOW ANY GOOD REASON TO NOT TO FOLLOW THE ABOVE QUOTED ORDER OF T HE TRIBUNAL IN ASSESSEES OWN CASE. FACTS BEING IDENTICAL RESPECTFULLY FOLLOW ING THE PRECEDENT, WE CONFIRM THE ORDER OF THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS) ALLOWING THE DEPRECIATION AT HIGHER RATE OF 40% ON BUSES LEASED TO AMTS. THUS, THE GROUND OF APPEAL OF THE REVENUE IS DISMIS SED. 17. GROUND NO.3 AND 4 OF THE REVENUES APPEAL ARE G ENERAL IN NATURE AND REQUIRES NO ADJUDICATION BY US. 18. IN THE ASSESSEES APPEAL GROUND NO.1 RELATES TO CONFIRMING DISALLOWANCE OF FOREIGN TOUR EXPENSES OF RS.5,33,210/- INCURRED BY THE CHAIRMAN AND MANAGING DIRECTOR AND DIRECTOR SHRI FALGUNBHAI C. P ATEL AND SMT. PANNABEN FALGUNBHAI PATEL BY TREATING THE SAME AS CAPITAL EX PENDITURE. 19. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE CLAIMED FOREIGN TOUR EXPENSES AMOUNTING TO RS.5,33,210/- FOR A TRIP TO Z URICH, SWITZERLAND AND EXPLAINED THAT THIS WAS INCURRED TO ASCERTAIN THE B USINESS OPPORTUNITY IN SWITZERLAND FOR THE HEALTHCARE PRODUCTS. THE LEARNE D ASSESSING OFFICER DISALLOWED THE CLAIM BY OBSERVING THAT THE ASSESSEE IS NOT MANUFACTURING HEALTHCARE PRODUCT AND IS ONLY TRADING IN TOOTHPAST E AND SHAMPOO IN LOCAL MARKET AND IT IS NOT DOING ANY EXPORT BUSINESS. THE MAIN BUSINESS OF THE ASSESSEE IS PUBLISHING VERNACULAR DAILY. ITA NO.2738/AHD/2006 & ITA/AHD/2006 THE SANDESH LTD. ASST.YEAR -2003-04 - 14 - 20. IN APPEAL BEFORE THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS) THE ASSESSEE SUBMITTED THAT FOREIGN TOUR EXPENSES SHOUL D BE ALLOWED AS THE SAME WAS INCURRED FOR EXPANSION OF ITS BUSINESS IN SWITZ ERLAND. 21. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT ASSESSEE IS NOT ENGAGED IN EXPORT BUSINESS AND ITS MAIN BUSINESS IS THAT OF PUBLISHIN G VERNACULAR DAILY AND TRADING OF TOOTHPASTE AND SHAMPOO IN LOCAL MARKET. THEREFOR E, THE EXPENDITURE INCURRED FOR INITIATING A NEW BUSINESS IS NOT A RE VENUE EXPENDITURE AS HELD BY HON'BLE M.P. HIGH COURT IN THE CASE OF CIT VS. FLOU R AND FOOD LTD. 170 ITR 469 AND HON'BLE GUJARAT HIGH COURT IN THE CASE OF SHAHI BAUG ENTREPRENEURS PVT. LTD. VS. CIT 210 ITR 98 WHERE IT HAS BEEN HELD THAT FOREIGN TOUR EXPENSES FOR SETTING UP A NEW JOINT VENTURE UNIT IN FOREIGN COUN TRIES ARE NOT ALLOWABLE. HENCE, HE CONFIRMED THE ACTION OF THE LEARNED ASSES SING OFFICER. 22. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE REITERATED THE SUBMISSION MADE BEFORE THE LOWER AUTHORITIES. 23 THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTE D THE ORDER OF THE LOWER AUTHORITIES. 24. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE, THE ASSESSEES CLAIM FOR FOREIGN TRAVELLING EXPENSES OF RS.5,33,210/- TO ZURICH AND SWITZERLAND WAS DISALLOWED BY THE LEARNED ASSESSING OFFICER ON THE GROUND ASSESSEE WAS ENGAGED IN TRADING OF TOOTHPASTE AND S HAMPOO IN DOMESTIC ITA NO.2738/AHD/2006 & ITA/AHD/2006 THE SANDESH LTD. ASST.YEAR -2003-04 - 15 - MARKET AND PUBLISHING OF VERNACULAR DAILY AND WAS N OT ENGAGED IN ANY EXPORT ACTIVITY AND THEREFORE, THE EXPENDITURE WAS NOT REL ATED TO THE EXISTING BUSINESS OF THE ASSESSEE. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THE ASSESSEE CONTENDED THAT THE EXPENDITURE WAS INCURRE D FOR EXPANSION OF BUSINESS AND FOR UNDERTAKING TO INVESTIGATE POTENTI ALITY OF EXPORT OF HEALTHCARE PRODUCTS. THE LEARNED COMMISSIONER OF INCOME TAX(A PPEALS) FINDING THAT THE ASSESSEE WAS NOT DEALING IN HEALTHCARE PRODUCT AND EXPENDITURE WAS INCURRED FOR INITIATING A NEW LINE OF BUSINESS AND THEREFORE , THE SAME WAS NOT ALLOWABLE AS DEDUCTION. IN SUPPORT OF THIS THE LEARNED COMMIS SIONER OF INCOME TAX(APPEALS) RELIED UPON THE DECISION OF HON'BLE GU JARAT HIGH COURT IN THE CASE OF SHAHIBAUG ENTREPRENEURS PVT. LTD. VS. CIT, 210 ITR 98 AMONGST OTHERS. WE FIND THAT THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE COULD NOT POINT OUT ANY ERROR IN THE ORDER OF THE LEARNED COM MISSIONER OF INCOME TAX(APPEALS),. THE LEARNED AUTHORISED REPRESENTATIV E OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). IN ABSENCE OF ANY SPECIFIC ERROR BEIN G POINTED OUT IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS), WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE LEARNED C OMMISSIONER OF INCOME TAX(APPEALS). IT IS CONFIRMED AND THE GROUND OF APP EAL OF THE ASSESSEE IS DISMISSED. 25. GROUND NO.2 OF THE ASSESSEES APPEAL RELATES TO CONFIRMING DISALLOWANCE OF BUILDING REPAIRS RS.5,33,616/- AS CAPITAL EXPEN DITURE. 26. THE LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSEE IS HAVING RENTED PROPERTIES AND THAT ASSESSEE HAS CLAIMED REP AIR EXPENSES OF ITA NO.2738/AHD/2006 & ITA/AHD/2006 THE SANDESH LTD. ASST.YEAR -2003-04 - 16 - RS.5,33,616/- , WHICH WAS IN RESPECT OF PROPERTY AT BHAVNAGAR. ACCORDING TO THE LEARNED ASSESSING OFFICER, THE WHOLE BUILDING WAS P ULLED DOWN AND RECONSTRUCTED. HE THEREFORE, HELD THAT EXPENSES WER E FOR RECONSTRUCTION OF WHOLE NEW BUILDING AFTER PULLING DOWN THE OLD BUILD ING AND DISALLOWED THE DEDUCTION FOR THE SAME AS REVENUE EXPENDITURE. IN APPEAL THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRM THE ACT ION OF THE LEARNED ASSESSING OFFICER. 27. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE SUBMITTED BEFORE US THAT THE EXPENDITURE SHOULD BE ALLOWED AS DEDUCTION TO THE ASSESSEE AS IT WAS INCURRED FOR REPAIRS ON BUILDING WHICH WA S TAKEN ON RENT BY THE ASSESSEE. 28. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORT ED THE ORDERS OF THE LOWER AUTHORITIES. 29. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE, THE ASSESSEES CLAIM OF REPAIRING EXPENSES OF RS.5,33,6 16/- IN RESPECT OF FACTORY BUILDING SITUATED AT BHAVNAGAR WAS DISALLOWED BY TH E LEARNED ASSESSING OFFICER ON TWO COMES, THE EXPENDITURE WAS CAPITAL IN NATURE AS A PART OF A BUILDING CONSISTING OF GODOWN, TOILET AND ONE ROOM WERE PULL ED DOWN AND RECONSTRUCTED. SECONDLY, THE BUILDING WAS OWNED BY MINOR SON OF THE MANAGING DIRECTOR WITH WHOM NO VALID WRITTEN AGREEM ENT OF LEASE WAS IN EXISTENCE DURING THE PERIOD UNDER CONSIDERATION. IN VIEW OF THIS THE LEARNED ASSESSING OFFICER ALSO OPINED THAT THE EXPENDITURE WAS NOT INCURRED FOR ITA NO.2738/AHD/2006 & ITA/AHD/2006 THE SANDESH LTD. ASST.YEAR -2003-04 - 17 - BUSINESS PURPOSES AND THEREFORE, THE ASSESSEE WAS N OT ENTITLED FOR DEPRECIATION ALSO. THE LEARNED COMMISSIONER OF INC OME TAX(APPEALS) CONFIRMED THE ABOVE ACTION OF THE LEARNED ASSESSING OFFICER. BEFORE US, THE ASSESSEES MAIN CONTENTION IS THAT AS THE BUILDING WAS USED FOR BUSINESS PURPOSESE OF THE ASSESSEES COMPANY THE EXPENDITURE IN QUESTION WAS BUSINESS EXPENDITURE INCURRED OUT OF COMMERCIAL EXPEDIENCY. THE ASSESSEE ALSO CONTENDED THAT AS THE ASSESSEE WAS NOT THE OWNER OF THE BUILDING THE EXEPENDITURE INCURRED OUT OF COMMERCIAL EXPENDIENCY OUGHT TO HAVE BEEN ALLOWED TO THE ASSESSEE AS BUSINESS EXPENDITURE. WE FIND THAT IT IS NOT IN DISPUTE THAT THE ASSESSEES FACTORY WAS SITUATED IN THE BUILDING IN RESPECT OF WHICH THE EXPENDITURE IN QUESTION WAS INCURRED. FUR THER THE ASSESSEES CONTENTION THAT THE RENT PAID BY THE ASSESSEE IN RE SPECT OF THE SAID BUILDING WAS ALLOWED BY THE LEARNED ASSESSING OFFICER AS BUS INESS EXPENDITURE COULD NOT BE CONTROVERTED BY THE REVENUE. WE THUS, FIND T HAT IT IS NOT IN DISPUTE THAT THE BUILDING IN QUESTION WAS TAKEN ON RENT ON LEASE BY THE ASSESSEE AND WAS USED FOR ITS BUSINESS PURPOSES. FURTHER, WE FIND TH AT THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS NOT DISPUTED THE FINDING OF THE LEARNED ASSESSING OFFICER THAT THE EXPENDITURE IN QUESTION WAS INCURRED TO PULL DOWN A PART OF THE RENTED PREMISES AND THE SAME WAS VERY O LD AND WAS IN A DILAPIDATED CONDITION AND THAT PORTION WAS RECONSTRUCTED OR REN OVATED. IN THE ABOVE CIRCUMSTANCES, IN OUR CONSIDERED VIEW, THE LOWER AU THORITIES WERE JUSTIFIED IN TREATING THE SAME AS CAPITAL EXPENDITURE AND NOT ME RELY REPAIRING EXPENSES OF REVENUE NATURE. HOWEVER, AS THE BUILDING IS USED FO R BUSINESS PURPOSES AND EXPENDITURE WAS INCURRED OUT OF COMMERCIAL EXPEDIEN CY ALONE IN OUR CONSIDERED VIEW, THE LOWER AUTHORITIES WERE NOT JUS TIFIED IN NOT ALLOWING DEPRECIATION TO THE ASSESSEE IN RESPECT OF ABOVE CA PITAL EXPENDITURE. WE ITA NO.2738/AHD/2006 & ITA/AHD/2006 THE SANDESH LTD. ASST.YEAR -2003-04 - 18 - THEREFORE, MODIFY THE ORDER OF THE LOWER AUTHORITIE S TO THE ABOVE EXTENT AND DIRECT THE LEARNED ASSESSING OFFICER TO ALLOW DEPRE CIATION AS PER LAW IN RESPECT OF THE ABOVE EXPENDITURE. THUS, THIS GROUND OF APPE AL OF THE ASSESSEE IS DISMISSED. 30 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 18/09/2009. SD/- SD/- ( H.L. KARWA ) (N.S. SAINI ) JUDICIAL MEMBER ACC OUNTANT MEMBER AHMEDABAD; DATED 18/09/ 2009 PARAS# COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-XIV, AHMEDABAD. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD