Appeal details
Counselvise Citation
[2012] 119 COUNSELVISE.COM (IT) 8215 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
5 year(s) 9 month(s) 30 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
03-08-2012
Appeal Filed By
Department
Order Result
Allowed
Bench Allotted
C
Next Hearing Date
17-07-2012
Assessment Year
1993-1994
Appeal Filed On
04-10-2006
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C , MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER ITA NO.5189/MUM/2006 ASSESSMENT YEAR : (1993-94) DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-47 AAYAKAR BHAVAN ROAD NO.658/676 M.K. ROAD MUMBAI-400 020. M/S. PRITHVI PRAKASHAN PVT. LTD. 189/A, ANANAD COMPLEX SANE GURUJI MARG CHICHPOKALI (W) MUMBAI-400 011. PAN NO. AAACP 5814 A (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI N. SATHYA MURTHY RESPONDENT BY : SHRI NITESH JOSHI DATE OF HEARING : 17.7.2012 DATE OF PRONOUNCEMENT : 03.8.2012 O R D E R PER RAJENDRA SINGH, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDE R DATED 27.7.2006 OF CIT(A) FOR THE ASSESSMENT YEAR 1993-94. T HE ONLY DISPUTE RAISED IN THIS APPEAL IS REGARDING ALLOWABILITY OF DEPRECIATION IN RESPECT OF PLANT AND MACHINERY BEING LEASED OUT BY THE ASSESSEE. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE HAD PURCHASED 1 7 IRON ROLLS USED IN STEEL INDUSTRIES FROM M/S. INDORE STEEL & IRON MILLS LTD. ITA NO.5189/M/06 A.Y.93-94 2 (ISIM) FOR A SUM OF RS.34,97,500/- ON 25.3.1993. THE SE ROLLS HAD BEEN PURCHASED BY ISIM FOR A SUM OF RS.36,88,540/- IN 1 991. THE ASSESSEE HAD MADE PAYMENT OF RS.20.00 LACS THROUGH DD ON 26.3.1993 AND BALANCE AMOUNT OF RS.14,97,500/- HAD BE EN PAID THROUGH DD ON 31.5.1993. THE ASSESSEE VIDE LEASE AGREEM ENT DATED 27.3.1993 HAD LEASED THESE ROLLS TO ISIM FOR A PERIOD OF THREE YEARS COMMENCING FROM 27.3.1993. AS PER LEASE AGREEMENT THE L EASE RENT PAYABLE WAS RS.3,50,000/- ON 27.6.1993 AND THEREAFTER RS.3,80,000/- AT THE END OF EACH QUARTER TILL THE THREE YEAR PERIO D ENDED ON 27.3.1996. AT THE TIME OF ORIGINAL ASSESSMENT DATED 2 9.12.1995, THE AO NOTED THAT THERE WAS NO PHYSICAL MOVEMENT OF IRON R OLLS WHICH REMAINED WITH ISIM. NO PHYSICAL POSSESSION WAS HANDED OVER BY ISIM TO THE ASSESSEE. THE ASSESSEE HAD ALSO FAILED TO GIVE SPECIFIC DETAILS OF IRON ROLLS. THE AO ALSO OBSERVED THAT THE IRON ROLLS WE RE HIGHLY DEPRECIABLE IN NATURE AND, THEREFORE, PRIOR TO THE P URCHASE BY THE ASSESSEE THESE WERE HEAVILY DEPRECIATED DUE TO USE BY ISIM . THE ASSESSEE HAD CLAIMED DEPRECIATION OF RS.17,48,750/- @ 50% OF THE NORMAL RATE FOR 100% OF DEPRECIATION ALLOWABLE ON SUCH ROLLS AS IN THE RELEVANT YEAR THIS HAD BEEN USED FOR LESS THAN SIX MONT HS. THE AO IN THE ORIGINAL ASSESSMENT HELD THAT THE ROLLS REMAINED IN THE POSSESSION OF ISIM THROUGHOUT WHO WAS THE ACTUAL OWNER. THE AO H ELD THAT IT WAS A CASE OF SIMPLE LOAN TRANSACTION WHICH HAD BEEN GIVEN THE COLOUR OF ITA NO.5189/M/06 A.Y.93-94 3 LEASE TRANSACTION TO REDUCE TAX LIABILITY OF THE ASSESSEE. THE AO, THEREFORE, HELD THAT PURCHASE AND LEASE BACK TRANSACTIO N OF IRON ROLLS WAS A SHAM TRANSACTION AND ACCORDINGLY DISALLOWED THE CLA IM OF DEPRECIATION. IN APPEAL, THE CIT(A) ALLOWED CLAIM OF DEPRECIATION IN ORDER DATED 28.6.1996. IN FURTHER APPEAL, THE TRIBU NAL IN THE ORDER DATED 30.1.2004 IN ITA NO.5840/MUM/2006 NOTED THAT THE AUTHORITIES BELOW DID NOT EXAMINE AS TO WHAT HAPPENED TO THE LEA SED ASSETS ON EXPIRY OF LEASE PERIOD. THE TRIBUNAL ALSO OBSERVED THA T THE AO HAD ASSESSED THE ENTIRE LEASE RENT DISCLOSED BY THE ASSESSEE BUT H AD DISALLOWED THE CLAIM OF DEPRECIATION WHICH WAS INCONSISTENT . THE TRIBUNAL FURTHER OBSERVED THAT THE SPECIAL BENCH OF T HE TRIBUNAL IN THE CASE OF MID EAST PORTFOLIO (87 ITD 537) HAD MADE VARI OUS OBSERVATIONS WHICH HAD A BEARING ON THE CLAIM OF DEPRECIATION OF ASSE TS BOUGHT AND LEASED BACK. THE TRIBUNAL, THEREFORE, SET ASIDE THE ORD ER OF CIT(A) AND RESTORED THE MATTER TO THE FILE OF AO FOR PASSING A FR ESH ORDER AFTER NECESSARY EXAMINATION AND AFTER ALLOWING OPPORTUNITY O F HEARING TO THE ASSESSEE. 3. DURING FRESH ASSESSMENT PROCEEDINGS, THE ASSESSEE FURNISHE D COPY OF LEASE AGREEMENT, BILLS OF PURCHASE OF IRON ROLLS FROM ISIM, CONFIRMATION FROM ISIM, RECEIPT OF PAYMENT FROM ISIM, CERTIFICATE FROM ISIM REGARDING COST OF PURCHASE OF IRON ROLL, DETAILS O F PURCHASE OF IRON ROLL BY ISIM AND CERTIFICATE FROM SHRI NAVIN GOYAL A CHARTERED ENGINEER ITA NO.5189/M/06 A.Y.93-94 4 REGARDING VALUATION OF IRON ROLLS. THE ASSESSEE SUBMITTED BEFORE AO THAT THE TRANSACTION WAS A GENUINE TRANSACTION AND, THE REFORE, THE CLAIM OF DEPRECIATION SHOULD BE ALLOWED. THE AO HOWEVE R DID NOT ACCEPT THE CONTENTIONS RAISED. IT WAS OBSERVED BY HIM THAT AFTER PURCHASE BY THE ASSESSEE, PHYSICAL POSSESSION OF IRON ROLLS WER E NOT HANDED OVER BY ISIM TO THE ASSESSEE AND EVEN AFTER EXPI RY OF LEASE AGREEMENT THE IRON ROLLS WERE STILL LYING WITH ISIM A ND HAD NOT BEEN TAKEN OVER BY THE ASSESSEE TILL DATE. THE AO ALSO OBSERV ED THAT ISIM HAD CLAIMED 100% DEPRECIATION ON THE IRON ROLLS AND TH EREAFTER ASSESSEE ALSO CLAIMED DEPRECIATION ON THE SAME ASSETS. THE AO FURTHER OBSERVED THAT THOUGH THE ASSESSEE HAD PRODUCED COPY OF CERTIFICATE FROM SHRI NAVIN GOYAL A CHARTERED ENGINEER BUT FAILED TO PRODUCE SUPPORTING DOCUMENTS ON THE BASIS OF WHICH SHRI GO YAL HAD QUANTIFIED THE VALUES OF THESE ROLLS AT RS.35,00,000/-. IT WAS ALSO NOT CLEAR FROM THE CERTIFICATE AS TO WHETHER THE ROLLS I NSPECTED BY SHRI NAVIN GOYAL WERE SAME WHICH HAD BEEN LEASED BY THE ASSESSE E TO ISIM. THE AO ALSO NOTED THAT THE ASSESSEE WAS IN THE BU SINESS OF PUBLISHING NEWS PAPERS AND BUYING OF GOODS AND LEASING T HEM OUT ON RENT WAS NOT NORMAL BUSINESS OF THE ASSESSEE. THE AO THER EFORE, CONCLUDED THAT THE TRANSACTION WAS A SHAM TRANSACTION ENTER ED INTO BY THE ASSESSEE WITH A MOTIVE OF REDUCING TAX LIABILITY. T HE AO ITA NO.5189/M/06 A.Y.93-94 5 ACCORDINGLY DISALLOWED THE CLAIM OF DEPRECIATION OF RS.17 ,48,750/- AND ASSESSED TOTAL INCOME AT RS.41,11,565/-. 4. THE ASSESSEE DISPUTED THE DECISION OF AO AND REITERATE D THE SUBMISSIONS MADE EARLIER THAT PURCHASE AND LEASE BACK OF IR ON ROLLS WAS A GENUINE TRANSACTION AND DEPRECIATION SHOULD BE AL LOWED. THE CIT(A) REMANDED THE MATTER TO THE AO FOR REPORT IN THE LIGHT OF OBSERVATIONS OF ITAT. IN THE REMAND REPORT, THE AO M ENTIONED THAT THE ASSESSEE HAD DECLARED LEASE RENTALS IN ASSESSMENT YEARS 199 4-95, 1995-96 AND 1996-97. THE AO ALSO REPORTED THAT BALA NCE DEPRECIATION OF 50% CLAIMED BY THE ASSESSEE IN 1994-95 HAD BEEN ALLOW ED BY AO IN FULL. CIT(A) AFTER CONSIDERING DETAILS AND MATERIAL ON RECORD OBSERVED THAT THE ASSESSEE HAD FURNISHED COPY OF LEASE AGREEMENT, B ILLS OF PURCHASE AND ALSO CONFIRMATION FROM ISIM AS WELL AS DETAI LS OF PURCHASE OF THESE ROLLS BY ISIM AS WELL AS CERTIFICATE FROM CHARTERED ENGINEER. CIT(A) ALSO OBSERVED THAT FINANCE PART OF THE TRANSACTION WAS ESTABLISHED AND THERE WAS NO MATERIAL TO SHOW ANY PR E-EXISTING RELATIONSHIP BETWEEN ASSESSEE AND ISIM. CIT(A) FURTHER O BSERVED THAT CONSIDERING ALL THESE FACTORS INCLUDING ASSESSMENT OF LEASE RENTALS IN 1994-95 TO 1996-97, HER PREDECESSOR CIT(A), IN EARLIE R ROUND HAD HELD THAT THE TRANSACTION WAS NOT COLOURABLE AND DEPRECIATION HAD BEEN ALLOWED. THE AO HAD SIMPLY FOLLOWED THE REASONING GI VEN IN THE ORIGINAL ASSESSMENT ORDER IN DISALLOWING THE CLAIM. CIT( A) THEREFORE ITA NO.5189/M/06 A.Y.93-94 6 ALLOWED THE CLAIM OF THE ASSESSEE AND DELETED THE ADDITI ON MADE BY AO, AGGRIEVED BY WHICH, REVENUE IS IN APPEAL BEFORE T HE TRIBUNAL. 5. BEFORE US, THE LD. DR APPEARING FOR THE REVENUE ASSAILED THE ORDER OF CIT(A). IT WAS ARGUED THAT CIT(A) HAD NOT CO NSIDERED THE FACT THAT THE ROLLS WERE NOT TAKEN OVER BY THE ASSESSEE EVEN AFTER EXPIRY OF THE LEASE PERIOD AND THE SAID ROLLS ALWAYS REMAINED WIT H ISIM WHO WAS USING THEM FOR BUSINESS. THE ASSESSEE HAD ONLY PAID CERTAIN AMOUNTS WHICH HAD BEEN RECEIVED BACK IN INSTALMENTS WITHOUT EVE N TAKING OVER THE ROLLS. IT WAS POINTED OUT THAT ISIM HAD ALREADY CL AIMED DEPRECIATION ON THE ROLLS ON WHICH ASSESSEE WAS CLAIMING DE PRECIATION THROUGH PAPER TRANSACTION, THERE BEING NO MOVEMENT OF ROLLS. THE LD. DEPARTMENTAL REPRESENTATIVE HIGHLIGHTED THE VARIOUS F ACTUAL POSITION DISCUSSED IN THE ORDER OF AO. IT WAS ALSO SUBMITTED THAT THE CASE OF THE ASSESSEE WAS SIMILAR TO THE CASE OF M/S. INDUSIND BANK LI MITED VS. ACIT IN ITA 6566/M/02 FOR ASSESSMENT YEAR 1998-99 DATE D 14.3.2012 IN WHICH SIMILAR TRANSACTIONS HAD BEEN HELD AS FINANCE TR ANSACTIONS BY THE SPECIAL BENCH OF THE TRIBUNAL. IT WAS ACCORDINGLY UR GED THAT THE ORDER SHOULD BE SET ASIDE AND DISALLOWANCE MADE BY AO SHOULD BE UPHELD. 5.1 THE LD. AR FOR THE ASSESSEE ON THE OTHER HAND STRON GLY SUPPORTED THE ORDER OF CIT(A) AND SUBMITTED THAT TRAN SACTIONS WERE ITA NO.5189/M/06 A.Y.93-94 7 SUPPORTED BY BILLS AND CONFIRMATIONS AS WELL AS PAYMENT M ADE BY DRAFT. THE LEASE OF THE ROLLS WAS SUPPORTED BY LEASE AGR EEMENT. IT WAS POINTED OUT THAT PURCHASE AND LEASE BACK WAS A NORMAL BU SINESS TRANSACTION AND IT WAS NOT NECESSARY TO TAKE OVER ASSETS BY THE ASSESSEE PHYSICALLY WHEN IT WAS BEING LEASED SIMULTANEOUSLY. THE LD. AR REFERRED TO THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MID EAST PORTFOLIO MANAGEMENT LTD. VS. DY. CIT . (MUMBAI)(SB) (87 ITD 537) IN WHICH IT HAS BEEN HELD THAT ACTUAL OR PHYSICAL DELIVERY IN SUCH TRANSACTIONS WAS NOT MATERIAL AND THAT CONSTRUCTIVE DELIVERY WAS ENOUGH IN CASE OF THE SALE AND LEASE BACK TRANSACTIONS. IT WAS ALSO SUBMITTED THAT PURCHASE VALUE OF THE ROLLS WAS SUPPORTE D BY CERTIFICATE OF CHARTERED ENGINEER, A COPY OF WHICH WAS PLACED BEFORE THE AUTHORITIES BELOW AND PLACED AT PAGE-74 OF THE PAPER BOOK. IT WAS ALSO ARGUED THAT LEASE RENTALS IN RESPECT OF THE SAME ROL LS HAD BEEN TAXED BY AO IN ASSESSMENT YEAR 1994-95 TO 1996-97 AND THEREFORE, THE TRANSACTIONS COULD NOT BE HELD TO BE NON-GENUINE. HE HOWEVER, ADMITTED THAT, IN ASSESSMENT YEAR 1994-95 IN WHICH BALAN CE 50% DEPRECIATION HAD BEEN MADE, THE ASSESSMENT HAD BEEN MAD E UNDER SECTION 143(1). THE LD. AR ALSO PLACED RELIANCE ON THE J UDGMENT DATED 17.4.2012 OF THE HON'BLE HIGH COURT OF MADRAS IN THE CA SE OF CIT VS. M/S. HIGH ENERGY BATTERIES (INDIA) LTD. IN T.C.(APPEAL ) NOS. 579 TO 581 OF 2005 DATED 17.4.2012 IN WHICH UNDER SIMILAR SI TUATION THE ITA NO.5189/M/06 A.Y.93-94 8 CLAIM OF THE ASSESSEE HAD BEEN ALLOWED. IT WAS ALSO POIN TED OUT THAT SUBSEQUENTLY, THE ASSESSEE BECAME A SICK COMPANY UNDER BIFR. IT WAS ACCORDINGLY URGED THAT THE CLAIM OF THE ASSESSEE SHOULD BE ALLOWED AND ORDER OF CIT(A) BEING REASONABLE AND FAIR SHOULD BE U PHELD. 6. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IN THIS APPEAL IS RE GARDING DISALLOWANCE OF DEPRECIATION IN RESPECT OF IRON ROLLS PUR CHASED BY THE ASSESSEE FROM ISIM AND LEASED BACK TO THE SAME PARTY. ISIM HAD PURCHASED THESE ROLLS IN 1991 FOR A SUM OF RS.36,88,540/- . THE ASSESSEE PURCHASED THE SAID ROLLS ON 25.3.1993 FOR A SUM OF 34,97,500/- AND LEASED BACK TO ISIM AS PER LEASE AGREEM ENT DATED 27.3.1993 FOR INITIAL LEASE RENT OF RS.3,50,000/- FOL LOWED BY QUARTERLY LEASE RENT OF RS.3,80,000/- TILL THE END OF THREE YEA R LEASE PERIOD. IN THE ORIGINAL ASSESSMENT ORDER DATED 29.12.1995, THE AO HAD DISALLOWED THE CLAIM OF DEPRECIATION AMOUNTING TO RS. 17,48,750/- @ 50% ON THE GROUND THAT THE ASSESSEE HAD NOT TAKEN PHYSICA L POSSESSION OF THE ROLLS FROM ISIM AND THESE ROLLS WHICH WER E ENTITLED FOR 100% DEPRECIATION WERE HEAVILY DEPRECIATED DUE TO USAGE BY ISIM BEFORE SALE TO THE ASSESSEE. IN APPEAL, CIT(A) ALLOWED CL AIM OF THE ASSESSEE BUT IN FURTHER APPEAL THE TRIBUNAL HAD RESTORED THE ISSUE TO THE FILE OF THE AO FOR FRESH ORDER AFTER EXAMINING A S TO WHAT HAPPENED TO THE ASSETS ON EXPIRY OF THE LEASE PERIOD AND AFTER CO NSIDERING THE ITA NO.5189/M/06 A.Y.93-94 9 FACT THAT IN THE SUBSEQUENT YEARS, THE LEASE RENT FROM T HE ASSETS HAD BEEN TAXED IN CASE OF THE ASSESSEE AND AFTER TAKING INTO ACCOUNT THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN CASE OF MID EAST PORTFOLIO (SUPRA). 6.1 IN THE FRESH ASSESSMENT PROCEEDINGS, THE ASSESSEE PRODUCE D BILLS OF PURCHASE FROM ISIM, THE CONFIRMATION OF RECEIPT OF PAYMENT, COPY OF LEASE AGREEMENT AND CERTIFICATE OF SHRI NAVIN G OYAL, A CHARTERED ENGINEER REGARDING VALUATION OF IRON ROLL S. THE AO HOWEVER DID NOT ACCEPT THE CLAIM ON THE GROUND THAT THE ASSESSEE N EVER RECEIVED THE ROLLS AFTER PURCHASE AND THAT THE ROLLS RE MAINED WITH THE SELLER EVEN AFTER EXPIRY OF THE LEASE PERIOD. THE AO HAS ALSO OBSERVED THAT ISIM HAD CLAIMED 100% DEPRECIATION ON THESE ROLLS ON WHICH THE ASSESSEE WAS AGAIN CLAIMING DEPRECIATION WHEN THE ROLLS REM AINED WITH ISIM. FURTHER, CERTIFICATE FROM NAVIN GOYAL HAD NOT G IVEN ANY BASIS FOR THE PURCHASE VALUE SHOWN BY THE ASSESSEE . THE AO, THUS, TR EATED THE TRANSACTION AS SHAM WITH A MOTIVE TO REDUCE TAX LIABILIT Y AND, THUS, DISALLOWED CLAIM OF DEPRECIATION. CIT(A) HOWEVER, ALLO WED THE CLAIM ON THE GROUND THAT PURCHASE AND LEASE BACK WAS SUPPORTED BY DOCUMENTS AND THERE WAS EVIDENCE OF PAYMENT FOR PURCHASE AND THE LEASE RENTALS HAD BEEN TAXED IN CASE OF THE ASSESSEE. CIT(A), THEREFORE , HELD THAT TRANSACTION WAS NOT COLOURABLE PARTICULARLY WHEN THERE W AS NO RELATIONSHIP BETWEEN ASSESSEE AND ISIM. ITA NO.5189/M/06 A.Y.93-94 10 6.2 ON CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND MATERIAL ON RECORD, WE ARE UNABLE TO SUSTAIN T HE ORDER OF CIT(A). THE TRIBUNAL IN THIS CASE HAD SET ASIDE THE ISSUE TO THE FILE OF AO, TO LOOK INTO THE FACT AS TO WHAT HAPPENED TO THE ROLL AFTER EXPIRY OF LEASE PERIOD. THE AO HAS GIVEN A CLEAR FINDING THAT TH E ROLLS REMAINED WITH THE ISIM EVEN AFTER EXPIRY OF LEASE PERIOD. CIT (A) HAS HOWEVER NEITHER CONSIDERED THIS ASPECT NOR HAS GIVEN ANY FINDING ON THIS ISSUE. THE TRANSACTIONS CAN NOT BE CONSIDERED AS GENUINE MERELY ON THE GROUND THAT THE SAME ARE SUPPORTED BY BILLS AND AGREEM ENTS. IT IS A SETTLED LEGAL POSITION THAT IT IS SUBSTANCE AND NOT THE FORM OF TRANSACTION WHICH IS RELEVANT. FURTHER, FOR A TRANSACTIO N TO BE A COLOURABLE DEVICE, IT IS NOT NECESSARY THAT THERE SHOULD B E PRE-EXISTING RELATIONSHIP BETWEEN PARTIES. EVEN UNRELATED PARTIES CAN ENTER INTO COLOURABLE TRANSACTION TO AVOID TAX LIABILITY IF IT IS MUTUALLY BENEFICIAL. IN OUR VIEW ALL RELEVANT FACTS AND CIRCUMSTANCES OF THE CASE HAVE TO BE CONSIDERED CAREFULLY BEFORE ARRIVING AT ANY CONCLUSION AS TO WHETHER A PARTICULAR TRANSACTION IS GENUINE TRANSACTION OR A COLOURA BLE DEVICE. THE RELEVANT FACTORS IN THIS CASE WOULD BE THE VALUATION OF THE ASSET PURCHASED BY THE ASSESSEE, THE CONDUCT OF THE ASSESSEE IN DE ALING WITH THE ASSET PURCHASED, EVASION OF TAX ETC. MERELY ON THE GR OUND THAT THE ASSESSEE AFTER PURCHASE OF ASSET HAS LEASED BACK THE SAME TO TH E SELLER AND THERE WAS NO DELIVERY TAKEN, IT CANNOT BE CO NCLUDED THAT IT ITA NO.5189/M/06 A.Y.93-94 11 WAS NOT A CASE OF GENUINE PURCHASE AND LEASE BACK. IN SUCH CASES OF PURCHASE AND LEASE BACK, PHYSICAL DELIVERY MAY NOT BE NECE SSARY AS THE ASSET HAS TO BE GIVEN BACK TO THE SAME PARTY AND CONST RUCTIVE DELIVERY WOULD SUFFICE AS HELD BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MID EAST PORTFOLIO (SUPRA). 6.3 BUT IT IS IMPORTANT TO CONSIDER WHETHER THE ASSESSEE H AS DEALT WITH THE ASSET AS AN OWNER WHICH SHOULD BE CLEAR FROM THE CONDUCT OF THE ASSESSEE WITH RESPECT TO THE ASSET AFTER EXPIRY OF TH E LEASE PERIOD BECAUSE IN CASE OF GENUINE PURCHASE, ASSESSEE IS EXPECTED TO TA KE BACK THE ASSET AND USE IT EITHER FOR OWN PURPOSE OR LEASE IT TO SOME OTHER PARTY. IN THE PRESENT CASE, THE AO HAS GIVEN A F INDING THAT THE ASSET REMAINED WITH ISIM, THE ORIGINAL OWNER, EVEN AF TER EXPIRY OF LEASE PERIOD. CIT(A) HAS NOT GIVEN ANY FINDING ON TH IS ASPECT. FURTHER, INSOFAR AS THE ASSESSEE IS CONCERNED IT HAD ONLY PA ID A SUM OF RS.34,97,500/- TO ISIM AND HAS RECEIVED TOTAL SUM OF RS. 45,30,000/- OVER A PERIOD OF THREE YEARS. THEREFORE, IN CASE THE ROLLS HAVE NOT BEEN RECEIVED BY THE ASSESSEE AFTER THE LEASE PERIOD, IT WOULD BE A STRONG CASE OF ADVANCING OF MONEY WHICH HAS BEEN RECEIVED BACK WITH PRINCIPAL AND SOME INTEREST OVER A PERIOD OF THREE YEA RS. AS REGARDS THE ARGUMENT OF THE ASSESSEE THAT THE AO HIMSELF ALLOWED BALANCE 50% DEPRECIATION IN ASSESSMENT YEAR 1994-95, WE FIND THA T THE RETURN IN ASSESSMENT YEAR 1994-95 HAD ONLY BEEN PROCESSED UNDER SECTION ITA NO.5189/M/06 A.Y.93-94 12 143(1) IN WHICH AO HAD NO POWER TO MAKE ANY VARIATIO N IN THE INCOME OF THE ASSESSEE. THEREFORE, THERE IS NO CONSCIOUS DECISION OF THE AO TO ALLOW DEPRECIATION IN ASSESSMENT YEAR 1994-95. 6.4 IT HAS ALSO BEEN ARGUED THAT LEASE RENTALS RECEIVED BY THE ASSESSEE HAVE BEEN TAXED. BUT IT HAS NOT BEEN EXAMINED BY ANY OF THE AUTHORITIES WHETHER ASSESSEE HAD REALLY PAID TAX ON THE LEASE RENTALS. IN ASSESSMENT YEAR 1993-94 BY SHOWING THE ASSET ON LEASE THE ASSESSEE CLAIMED DEPRECIATION OF RS.17,48,750/- AND TH EREFORE, REDUCED THE INCOME TO THAT EXTENT. IN ASSESSMENT YEAR 199 4-95, THE LEASE RENTAL DECLARED BY ASSESSEE WAS RS.15,20,000/- AGAINS T WHICH DEPRECIATION OF RS.17,48,750/- WAS CLAIMED WHICH MEANS NO TAX WAS PAID ON THE LEASE RENT. THE POSITION IN ASSESSMENT YEARS 1995-96 AND 1996-97 HAS NOT BEEN EXAMINED AS TO WHETHER ASSESSEE HAS PAID ANY EFFECTIVE TAX ON THE LEASE RENTALS. THIS IS REQUIRED TO BE LOOKED INTO PARTICULARLY IN VIEW OF THE FACT THAT THE ASSESSEE SUBSEQUE NTLY IS STATED TO HAVE BECOME SICK. IN CASE, IT IS FOUND THAT THE ASSESSEE HAS DERIVED TAX ADVANTAGE DUE TO THIS ARRANGEMENT, IT WO ULD SUPPORT THE CASE OF A COLOURABLE DEVICE. FURTHER, ISIM HAD CLAIMED 1 00% DEPRECIATION ON THE ASSETS WHICH SHOWS THAT THESE WERE HIGH LY DEPRECIABLE ASSET. THE ASSESSEE HOWEVER, HAS SHOWN THE PURCHA SE PRICE OF RS.34,97,500/- WHEN ISIM HAD PURCHASED THE SAME AT RS.36,88,540/- I.E. ALMOST AT THE SAME PRICE EVEN AFTE R USE AND CLAIM ITA NO.5189/M/06 A.Y.93-94 13 OF 100% DEPRECIATION. THE VALUATION CERTIFICATE OF S HRI NAVIN GOYAL, A COPY OF WHICH HAS BEEN PLACED AT PAGE-74 OF THE PAPER BOOK DOES NOT GIVE ANY BASIS FOR VALUATION OF RS.35.00 LACS. IT ONLY STATES THAT HE INSPECTED THE ROLLS AND AFTER SEEING INVOICES AND BILLS TH E VALUE SHOULD BE AROUND RS.35.00 LACS. THE LD. AR HAS PLACED RELIANCE O N THE JUDGMENT OF THE HON'BLE HIGH COURT OF MADRAS IN THE CAS E OF CIT VS. M/S. HIGH ENERGY BATTERIES (INDIA) LTD. (SUPRA), WHICH I N OUR VIEW IS DISTINGUISHABLE. IN THAT CASE THE HONBLE COURT HELD THA T THE MERE FACT THAT THE ASSET PURCHASED HAD BEEN LEASED BACK AND VENDOR HAD UNDERTAKEN TO PAY LEASE CHARGES CAN NOT PER SE LEAD TO THE CONCLUSION THAT THE TRANSACTION IS SHAM IN THE ABSENCE OF ANY OTHE R MATERIAL. IN THE PRESENT CASE THERE ARE OTHER FACTS AND CIRCUMSTANCES AS DI SCUSSED EARLIER WHICH SUGGEST THAT TRANSACTION MAY NOT BE A GENU INE LEASE TRANSACTION BUT ONLY A FINANCIAL TRANSACTION. HOWEVER, B EFORE ARRIVING AT A PROPER CONCLUSION, FURTHER EXAMINATION AS MENTIONE D EARLIER IS NECESSARY. THE MATTER IN OUR VIEW REQUIRES FRESH EXAMINA TION AT THE LEVEL OF CIT(A) WHO HAS NOT CONSIDERED THE ISSUE PROPERL Y. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE ISSUE BACK TO HIM FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATI ON IN THE LIGHT OF OBSERVATIONS ABOVE AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. ITA NO.5189/M/06 A.Y.93-94 14 7. IN THE RESULT APPEAL BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 3.8.2012. SD/- SD/- (D. MANMOHAN ) VICE PRESIDENT (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 3.8.2012. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.
Mehul