M/S. JIK INDUSTRIES LTD., Mumbai V. THE DY CIT CIR-2(2), Mumbai

ITA 685/MUM/2005

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8451 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 17-09-2012
• Assessment Year: 1996-1997
• Appeal Filed On: 28-01-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: K SHIVARAM; AJAY R SINGH
• Keywords: Depreciation; Valuation report
• Section: 143(3); 133(6); 32

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI . , / BEFORE SHRI D. MANMOHAN, VICE PRESIDENT / AND !'# , !$ %& SHRI RAJENDRA, ACCOUNTANT MEMBER I.TA. NO. 685/MUM/2005 ASSESSMENT YEAR 1996-97 JIK INDUSTRIES LTD. 16, GUNDECHA CHAMBERS, NAGINDAS MASTER ROAD, FORT, MUMBAI 400 023. PAN: AABCJ 2982 J VS. DCIT CIRCLE 2(2), ROOM NO. 545, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400 020. ( '( / APPELLANT) ( )*'( / RESPONDENT) '( , ! / APPELLANT BY : SHRI K. SHIVARAM & SHRI AJAY R. SINGH )*'( - , ! /RESPONDENT BY : SHRI MOHIT JAIN - .$ / DATE OF HEARING : 17-09-2012 /0 - .$ / DATE OF PRONOUNCEMENT : 23-10-2012 %!1 / O R D E R PER RAJENDRA, A.M. THE APPELLANT HAS FILED THIS APPEAL AGAINST THE ORD ER DT. 27-08-2004 OF THE CIT(A)-II, MUMBAI ON THE FOLLOWING GROUNDS: 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II, MU MBAI [HEREINAFTER REFERRED TO AS CIT(A)] HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION OF RS. 90.00 LACS ON THE ASSETS ACQUIR ED BY THE APPELLANT COMPANY AND USED FOR THE PURPOSES OF ITS LEASING BUSINESS IN TO TAL DISREGARD OF THE FACTS OF THE CASE. 2. THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON F ACTS IN IGNORING THE CONFIRMATION OF THE LESSEE WHO HAS USED THE ASSETS AS LESSEE AND HAS THUS FAILED TO APPRECIATE THE TERMS OF THE LEASE AGREEMENT IN ITS (THE RIGHT SPIR IT) PROPER PERSPECTIVE. I.TA. NO. 685/MUM/2005 JIK INDUSTRIES LTD. 2 3. THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON F ACTS IN CONFIRMING THE DISALLOWANCE OF THE BROKERAGE OF RS. 45,000/- PAID ON THE LEASE TRANSACTION. 4. THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON F ACTS IN CONFIRMING THAT THE RATIO OF THE JUDGMENT OF THE MCDOWELLS CASE IS APPLICABLE T O THE FACTS OF THE CASE OF THE APPELLANT COMPANY. 5. THE APPELLANT COMPANY CRAVES LEAVE TO, ADD TO, ALTE R, AMEND, MODIFY, SUBSTITUTE, CHANGE ANY OF THE GROUNDS AS AND WHEN THE OCCASION MAY ARISE. 2. ASSESSEE, ENGAGED IN THE BUSINESS OF MERCHANT BANKI NG AND DEALING IN FOREIGN EXCHANGE, FILED RETURN OF INCOME ON 29-11-1996 DECL ARING A TOTAL INCOME OF RS.10,28,740/-. ASSESSING OFFICER (AO) FINALISED T HE ASSESSMENT U/S. 143(3) OF THE INCOME TAX ACT,1961(ACT) ON 31-03-1999. CIT(A) VID E HIS ORDER DATED 29-02-2000, SET ASIDE THE ASSESSMENT ON THE ISSUE OF ASSETS LEA SED TO M/S. HANUMAN INDUSTRIES (HIL) CALCUTTA. 3. EFFECTIVE GROUNDS OF APPEAL IS ABOUT DISALLOWANCE O F DEPRECIATION OF RS.90 LAKHS IN RESPECT OF MACHINERY LEASED OUT BY THE ASSESSEE. SECOND GROUND IS ABOUT PAYMENT OF BROKERAGE AMOUNTING TO RS. 45,000/- IN CONNECTI ON WITH THE LEASE TRANSACTION. DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT ASS ESSEE HAD CLAIMED DEPRECIATION OF RS. 90,00.000/- @100% IN RESPECT OF SUGARCANE CR USHERS STATED TO HAVE BEEN PURCHASED FROM ONE M/S. SHREE ANNAPURNA FINANCING C O. PVT. LTD (SAFC) AND LEASED TO HIL. IN THE ORIGINAL ASSESSMENT ORDER, IT WAS O BSERVED BY THE AO THAT THOUGH THE ASSESSEE PRODUCED PURCHASE BILL NO. SFC/ 101/95-96 DATED 07-08-1995 OF SAFC, THE RELEVANT COLUMNS OF CHALLAN NUMBER, DATE, C/N ETC., WERE NOT MENTIONED IN THE BILL. THE AO NOTED THAT ON NONE OF THE LETTER HEADS ANY P HONE NUMBER WAS MENTIONED. HE ALSO NOTED THAT THOUGH SALE BILL WAS ALLEGEDLY ISSU ED FROM CALCUTTA AND DELIVERY CHALLAN FROM BRANCH OFFICE AT BOMBAY BUT THE SIGNAT URE ON BOTH THE DOCUMENTS WERE OF THE SAME PERSON. THERE WERE NO TRANSPORT RECEIP TS, OCTROI RECEIPTS ETC., REGARDING TRANSPORTATION OF GOODS FROM CALCUTTA TO MOTIHARI ( NORTH BIHAR). THOUGH THE AO GAVE OPPORTUNITY TO THE ASSESSEE TO PRODUCE THESE DOCUME NTS AS WELL AS INSTALLATION CERTIFICATES ETC., NO SUCH DOCUMENTS WERE FURNISHED . AO FURTHER NOTED THAT ASSESSEE HAD PAID RS. 45 LAKHS ON TWO OCCASIONS ON 23-08-199 5 AND ON 28-08-1995 ON A/C. OF PURCHASE OF MACHINERY. ON 25-08-1995 AND 31-08-1995 IT RECEIVED DEPOSIT OF RS. 77.4 LAKHS FROM THE LESSEE.AO MADE INQUIRIES WITH HIL BY ISSUING A NOTICE U/S. 133 (B) OF THE ACT. IN RESPONSE TO THE NOTICE, HIL CONFIRMED THE TRANSACTION, BUT DID NOT FURNISH ANY OF THE DETAIL CALLED FOR BY THE AO. NOTICE U/S . 133(6) WAS ALSO ISSUED TO SAFC. AO HELD THAT ASSESSEE HAD NOT PURCHASED ANY ASSET, THAT ONLY BILLS WERE PURCHASED, THAT DEPRECIATION WAS NOT ALLOWABLE. 4. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY (FAA) WHO, AS STATED EARLIER, DIRECTED THE AO TO AFFORD A REASONA BLE OPPORTUNITY OF HEARING TO THE ASSESSEE. DURING THE RE-ASSESSMENT PROCEEDINGS, AO AGAIN HELD THAT THE ASSESSEE HAD FAILED TO PROVE THE GENUINENESS OF LEASE TRANSACTIO N, THAT TRANSACTION IS QUESTION WAS A CIRCULATING TRANSACTION. DEPRECIATION CLAIMED ON T HE ASSETS WAS DISALLOWED ALONG WITH THE BROKERAGE OF RS. 45,000/-. HOWEVER, AO EXCLUDED THE LEASE RENTAL AMOUNTING TO RS.10.32 LAKHS FROM THE TAXABLE INCOME OF THE ASSES SEE-COMPANY. ASSESSEE AGAIN PREFERRED AN APPEAL BEFORE THE FAA. AFTER CONSIDER ING THE SUBMISSIONS OF THE ASSESSEE, CASE LAW RELIED UPON BY THE AR OF THE ASS ESSEE AND THE ASSESSMENT HE HELD I.TA. NO. 685/MUM/2005 JIK INDUSTRIES LTD. 3 THAT ASSESSEE HAD SIMPLY PRODUCED A COPY OF PURCHAS E BILL OF SAFC DURING ASSESSMENT/RE-ASSESSMENT/APPELLATE PROCEEDINGS, THA T BILL DID NOT BEAR DETAILS OF CHALLAN NO, DATE, C/N NO.ETC., THAT DETAILS OF ASSE TS IN THE BILL WERE VERY GENERAL, THAT BILL SIMPLY STATED. ONE SET SUGARCANE CRUSHER EACH HAVING ROLLERS SIZE 42 X 84,THAT SUPPLIER COMPANY WAS NOT MANUFACTURER OF THE ASSETS IN QUESTION, THAT THERE WAS NO GATE PASS NUMBER/ GOODS RECEIPT NUMBER FOR THE MACH INERIES ENTERING THE FACTORY, THAT NAME OF THE PERSON RECEIVING MACHINERY AT HIL AS WE LL AS DATE OF DELIVERY WERE NOT FURNISHED BY THE ASSESSEE, THAT ASSESSEE DID NOT PR ODUCE OCTROI RECEIPT/TRANSPORT RECEIPT AS AN EVIDENCE FOR TRANSPORTATION OF ASSETS , THAT DOCUMENTS RELATED TO INSURANCE OF MACHINERY WERE NOT PRODUCED, THAT ASSESSEE DID N OT PRODUCE ANY INSPECTION REPORT, THAT THERE WAS ABSOLUTELY NO EVIDENCE THAT SUCH AN ASSET EVER EXISTED/EVER PURCHASED/LEASED, THAT EVEN AT THE TIME OF RE-ASSES SMENT PROCEEDINGS, THAT ASSESSEE FAILED TO PRODUCE ANY EVIDENCE, WHAT-SO-EVER, REGAR DING PURCHASE AND EXISTENCE OF ASSET, THAT ASSESSEE IN ITS PAPER BOOK FILED BEFORE HIM (I.E., FAA) DID NOT FILE ANY EVIDENCE IN THIS REGARD OTHER THAN A COPY OF BILL A ND A CRYPTIC CHALLAN, THAT ASSESSEE DID NOT DISCHARGE ONUS OF PROVING GENUINENESS OF TRANSA CTION, THAT HIL DID NOT PROVIDE DISTINCTIVE DETAILS LIKE NUMBER AND DESCRIPTION OF THE ASSETS, MAKE, YEAR OF MANUFACTURING, CAPACITY REGARDING INSTALLATION, PLA CE OF INSTALLATION, TRANSPORTERS RECEIPT- TO THE AO, THAT AS OWNER OF THE ASSETS ASS ESSEE DID NOT OBTAIN/FURNISH THE SAID DETAILS, THAT BASIS OF THE VALUATION OF THE ASSETS SOLD TO HIL WAS NOT KNOWN ,THAT IMMEDIATELY AFTER MAKING PAYMENT OF RS. 90 LAKHS FO R PURCHASE OF ASSETS, ASSESSEE RECEIVED BACK RS. 77.4 LAKHS AS SECURITY DEPOSIT FR OM THE LESSEE, THAT PURPOSE OF THE SO CALLED LEASE TRANSACTION WAS TO OBTAIN A PURCHASE B ILL TO CLAIM 100% DEPRECIATION AND TO REDUCE THE INCOME OF THE AY UNDER CONSIDERATION, THAT ALL THE LEASE RENTALS HAD BEEN ADJUSTED BY THE ASSESSEE AGAINST THE SECURITY-DEPOS IT, THAT ASSETS WERE SOLD FOR RS. 50,000/- TO HIL, THAT ASSESSEE DID NOT FURNISH DETAILS AS TO HOW THE SAID FIGURE OF RS. 50,000/- WAS ARRIVED AT, THAT SELLER AND THE LE SSEE WERE PARTIES TO THE TAX AVOIDANCE DEVICE ADOPTED BY THE ASSESSEE, THAT IN ABSENCE OF ANY OTHER DOCUMENTARY EVIDENCE REGARDING PURCHASE AND LEASE OF ASSET CONFIRMATIONS OF THE SELLER AND THE LESSEE WERE MORE IN NATURE OF SELF SERVING STATEMENTS, THAT A P HOTOGRAPH OF MACHINERY CANNOT BE ACCEPTED AS AN EVIDENCE, THAT BY CLAIMING 100% DEPR ECIATION AMOUNTING TO RS. 90 LAKHS IN RESPECT OF NON-GENUINE TRANSACTION THE ASS ESSEE HAD DEFERRED THE PAYMENT OF TAXES TO SUBSEQUENT YEARS, THAT CASE LAWS RELIED UP ON BY THE ASSESSEE WERE DISTINGUISHABLE ON FACTS, THAT CIRCULAR NO. 1978 DT . 31-12-1999 ISSUED BY THE CBDT DID NOT SUPPORT THE CASE OF THE ASSESSEE. FINALLY, HE HELD THAT IN THE CASE OF THE ASSESSEE PURCHASE AND EXISTENCE OF ASSETS WAS NOT P ROVED BY THE ASSESSEE AND THEREFORE, AO WAS JUSTIFIED IN DISALLOWING DEPRECIA TION( RS. 90 LAKHS) AND BROKERAGE (RS.45,000/- ) IN RESPECT OF ALLEGED PURCHASE OF SU GARCANE CRUSHERS FROM SAFC. 5. AGGRIEVED BY THE ORDER OF THE FAA, ASSESSEE HAS FIL ED THE PRESENT APPEAL. BEFORE US AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT TH E IT WAS A CASE OF GENUINE LEASE, THAT LEASE RENTS OF SUBSEQUENT YEARS WERE ASSESSED BY THE AO AS INCOME OF THE ASSESSEE, THAT PAYMENT TO SAFC WERE MADE THROUGH BA NKING CHANNELS, THAT DEPOSIT FORM HIL WAS RECEIVED BY CHEQUES, THAT ASSESSEE HAD OFFERED THE CAPITAL GAIN TAX WHEN MACHINERY WERE SOLD, THAT EVEN IF IT WAS A FIN ANCE LEASE DEPRECIATION WAS ALLOWABLE. HE RELIED UPON THE CASES OF ORIX AUTO & BUSINESS SOLUTIONS (ITA NO.2954/M/04, AY1998-99 DTD.26.7.2007), M/S. CABLE CORPORATION OF INDIA LTD (ITA NO.2366/M/ 2000, AY 1996-97 DTD. 29.10.2007), M/S. INVESTWELL PUBLISHER P.L. (ITA NO. 2154 / M/1999, AY 1995-96 DTD. 5.5.2006), THE W EST COAST PAPER MILLS LTD. (ITA NO. 5403/M/1999, AY 1996-97 DTD. 21.6.2005), M /S.TAIDA TRADING & IND. L. I.TA. NO. 685/MUM/2005 JIK INDUSTRIES LTD. 4 (ITA NO. 6602 TO 6604/M/97, AYS. 1990-91 TO 1992-93 , DTD. 16.7.2004), SONI CAPITAL MARKETS LTD (ITA NO. 4091/M/2000, AY 1996-97, DTD. 16.3.2004). HE ALSO RELIED UPON THE ORDER OF SHAAN FINANCE (P) LTD.(231ITR308) . HE FURTHER STATED THAT DECISION OF THE SPECIAL BENCH IN THE CASE OF INDUSLND BANK L TD.(135ITD165S) WAS NOT APPLICABLE TO THE FACTS OF THE CASE UNDER CONSIDERA TION. HE FURTHER ADVANCED AN ALTERNATE SUBMISSION THAT IN CASE DEPRECIATION WAS NOT TO BE ALLOWED THEN THERE WAS A NEED FOR REWORKING OF INCOME FOR SUBSEQUENT AYS. DE PARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT THERE WAS NO PROOF OF PURCHASING OR INSTALLATION OF ASSETS, THAT IN SPITE OF VARIOUS OPPORTUNITIES MADE AVAILABLE TO THE ASSE SSEE IT DID NOT FILE REQUIRED DETAILS. HE RELIED UPON THE CASE OF INDUSLND BANK LTD. (SUP RA) 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PUT BEFORE US. WE ARE OF THE OPINION THAT BEFORE DISCUSSING THE FACTS AND OTHER ISSUES OF THE CASE IT WILL BE USEFUL TO GO THROUGH THE RELEVANT TERMS OF THE A GREEMENT ENTERED IN TO BY THE ASSESSEE WITH THE HIL. WE ARE REPRODUCING IMPORTAN T TERMS AND CONDITIONS OF THE AGREEMENT: 6.1 . 3. AGREEMENT OF THE LESSEE TO PAY: 3.1 THE LESSEE HEREBY AGREES UNCONDITIONALLY AND IR REVOCABLY TO PAY TO THE LESSOR A LEASE DEPOSIT BY (DATE OF PAYMENT AND PLACE AT WHIC H PAYMENTS ARE REQUIRED TO BE MADE) AND PART PAYMENTS MAY ALSO BE ACCEPTED BY THE LESSOR WHICH WILL BE ADJUSTED TOWARDS LEASE RENTALS.THE LESSEE SHALL PAY THE LEAS E RENTALS, AFTER ADJUSTING THE ADVANCES, IF ANY, REGULARLY AND PUNCTUALLY, WITHOUT ANY DEDUCTIONS OR ABATEMENT, AND IRRESPECTIVE, AS TO WHETHER OR NOT THE EQUIPMENT IS BEING USED BY THE LESSEE OR/AND IRRESPECTIVE AS TO WHETHER OR NOT IT IS WORKING FOR ONE OR MORE SHIFTS OR IS UNDER REPAIRS OF MAINTENANCE OR REPLACEMENT FOR ANY PERIO D WHATSOEVER. 18. SECURITY DEPOSIT: 18.1 THE LESSEE SHALL PRIOR TO THE COMMENCEMENT OF THE LEASE PERIOD PLACE WITH THE LESSOR AN INTEREST FREE SECURITY DEPOSIT OF THE AMO UNT SPECIFIED IN THE SCHEDULE AS AND BY WAY OF ASSURANCE BY THE LESSEE OF THE DUE AND PR OPER PERFORMANCE OF ALL ITS OBLIGATIONS UNDER THIS AGREEMENT. 18.2 THE LESSOR SHALL REFUND SUCH DEPOSIT, BUT WITH OUT ANY INTEREST THEREIN, ON A PRO- RATA BASIS COMPUTED WITH REFERENCE IN THE RENT PAYA BLE (BUT NOT DUE) BY THE LESSEE UNDER THIS AGREEMENT. 18.3 THE LESSOR, HOWEVER, SHALL AT ALL TIME BE ENTI TLED TO ADJUST SUCH SECURITY DEPOSIT OR ANY PART, THEREOF AGAINST ANY AMOUNT DUE FROM TH E LESSEE IN TERMS OF THIS AGREEMENT WHETHER ON ACCOUNT OF RENT, LIQUIDATED DA MAGES OF OTHERWISE AND EXEMPT TO THE EXTENT OF TREATING SUCH LIABILITY AS DISCHAR GED TO THE EXTENT THAT IS SO ADJUSTED, THE RIGHTS OF THE LESSOR AND THE TERMS AND CONDITIO NS OF THIS AGREEMENT SHALL NOT BE MODIFIED OR AFFECTED IN ANY MANNER BY SUCH ADJUSTME NT. 18.4 THE LESSOR SHALL ALSO BE ENTITLED TO FORFEIT T HE WHOLE OR THE BALANCE OF THE SECURITY DEPOSIT IN THE EVENT OF PREMATURE TERMINAT ION OF THE LEASE BEFORE THE EXPIRY OF THE LEASE PERIOD FOR ANY OF THE REASONS SPECIFIED I N COLUMN 17 HEREOF. I.TA. NO. 685/MUM/2005 JIK INDUSTRIES LTD. 5 6.1 THE LESSEE HEREBY DECLARES AND CONFIRMS TO THE LESSOR THAT IT HAS INSPECTED OR ARRANGED FOR SUCH INSPECTION SO AS TO SATISFY HIMSE LF/ITSELF ABOUT THE SUITABILITY OF THE EQUIPMENT AND THAT HE/IT SHALL NOT BE ENTITLED TO R EJECT THE EQUIPMENT AS AND WHEN DELIVERED BY THE SUPPLIER. 11.A THE EQUIPMENT SHALL BE INSURED BY THE LESSEE I N THE LESSEES OWN NAME AND SHALL PROTECT THE LESSORS INTEREST, IF ANY. O. THE EQUIPMENT TAKEN ON LEASE WILL BE USED BY THE LESSEE IN HIS BUSINESS IMMEDIATELY ON TAKING DELIVERY THEREOF AND NECESSARY PROOF TO BE SUBMITTED TO LESSOR AS WOULD SATISFY THE REQUIREMENTS OF SECTION 32 OF THE INCOME TAX ACT, 1961. HOWEVER, THEY WOULD BE PERMITTED TO SUB-LEASE THE ASSETS. 8C. THE LESSOR HAS NOT AT ANY TIME MADE NOR DOES IT HEREBY MAKE ANY REPRESENTATION OR WARRANTY WHATSOEVER WITH RESPECT TO THE MERCHANT ABILITY, QUALITY, CONDITION, DURABILITY, SUITABILITY OF FITNESS FOR THE PURPOSE, USE, OPERATION OF PERFORMANCE OF THE EQUIPMENT AND THAT THE LESSOR HAS PURCHASED THE EQU IPMENT WITH THE APPROVAL OF THE LESSEE AS TO ITS QUALITY AND SUITABILITY AND EFFECT IVE WORKING OF THE SAME AND THAT THE LESSEE HAS NOT RELIED UPON ANY STATEMENT OR REPRESE NTATIONS MADE BY THE LESSOR OR ITS AGENTS OR SERVANTS. 9.A THE EQUIPMENT IS OF THE REQUIRED SIZE, DESIGN, CAPACITY AND MANUFACTURE, SUITABLE FOR ITS PURPOSE AND HAS BEEN SELECTED BY THE LESSEE RELYING ENTIRELY ON ITS OWN JUDGMENT AND NOT ON THE STATEMENTS OR REPRESENTATIO N, IF ANY, MADE BY THE LESSOR OR ITS AGENTS OR SERVANTS; 9.B THE LESSOR IS NOT THE SUPPLIER OF DEALER OF THE EQUIPMENT AND THAT THE ESSENTIAL FUNCTION OF THE LESSOR IN THIS LEASE TRANSACTION IS TO PURCHASE THE EQUIPMENT SELECTED BY THE LESSEE FROM THE SUPPLIER WHO HAS BEEN DESIGN ATED BY THE LESSEE. 14. EXCLUSIONS: THE LESSEE ACKNOWLEDGES AND AGREES WITH THE LESSOR THAT: A.THE EQUIPMENT IS OR SHALL BE ACCEPTED BY THE LESS EE WITH ALL FAULTS AND DEFECTS (IF ANY) AND DELIVERY WHETHER, PUNCTUAL OR DELAYED SHAL L BE CONCLUSIVE EVIDENCE THAT THE EQUIPMENT IS IN GOOD CONDITION AND SUBSTANTIAL WORK ING ORDER AND CONDITION. 7. UN-DISPUTED FACTS OF THE CASE CAN BE SUMMARISED AS UNDER : I). NEITHER THE ASSESSEE NOR THE SUPPLIER OF THE CRUSHE RS I.E., SAFC, IS MANUFACTURER OF SUGAR CANE CRUSHERS.ASSESSEE IS NOT IN THE BUSINESS OF MANUFACTURING SUGAR. II). CRUSHERS PURCHASED WERE AS PER THE REQUIREMENTS OF THE LESSEE. III). RS.77.4 LAKHS WERE RECEIVED BY THE ASSESSEE FIRM FR OM THE HIL AS INTEREST FREE SECURITY DEPOSIT AND MACHINERY WAS SUB-LEASED BY HIL TO M/S. SHREE HANUMAN SUGAR AND INDUSTRIES LTD.(SHSIL). I.TA. NO. 685/MUM/2005 JIK INDUSTRIES LTD. 6 IV). 100% DEPRECIATION (RS. 90,00,000/-) WAS CLAIMED BY THE ASSESSEE FOR THE AFORESAID ASSETS IN THE AY UNDER CONSIDERATION. V). MACHINERY WAS DESIGNED FOR THE SPECIFIC REQUIREMENT S OF HIL(TERMS 9A,9B AND 14) VI). CERTIFICATION OF INSTALLATION OF MACHINERY AS WELL AS INSPECTION REPORT WERE NOT PRODUCED BEFORE THE AO/FAA. VII). DATE OF FIRST USE OF THE INSTALLATION OF MACHINERY IS NOT KNOWN. VIII). FINALLY, CRUSHERS WERE SOLD TO HIL FOR RS. 50,000/- . IX). AS PET THE TERM O OF THE LEASE AGREEMENT NECESSA RY PROOF WAS TO BE SUBMITTED TO BY THE LESSEE TO THE LESSOR AS WOULD SATISFY T HE REQUIREMENTS OF SECTION 32 OF THE INCOME TAX ACT, 1961,BUT SUCH A CERTIFICATE WAS NE VER SUBMITTED. 7.1. TERM DEPRECIATION MEANS WEAR AND TEAR OF THE ASSE TS USED FOR THE PURPOSES OF EARNING REVENUE. COURTS ARE OF THE VIEW THAT THE P URPORT AND OBJECT OF LAW RELATING TO DEPRECIATION, AS ENVISAGED U/S. 32 OF THE ACT, HAS TO BE MEANINGFULLY INTERPRETED, CONSISTENT WITH THE OBJECT. WE FIND THAT IN THE AY UNDER CONSIDERATION DEPRECIATION WAS PERMISSIBLE IN THE CASE OF MACHINERY, PLANT OR FURNITURE OWNED BY THE ASSESSEE AND USED FOR THE PURPOSES OF THE BUSINESS OR PROFES SION. IN OUR OPINION WHEN THE LEGISLATURE HAS USED THE WORD USED FULL MEANING M UST BE GIVEN TO IT. THE MACHINERY HAS TO BE ACTUALLY USED IN TERMS OF THE STATUTE. T HE WORDS USED FOR THE PURPOSES OF BUSINESS ARE CAPABLE OF LARGER OR NARROWER INTERPR ETATION. FOR CLAIMING DEPRECIATION ANY OF THE TWO MEANING (ACTIVELY OR PASSIVELY USED) CAN BE ADOPTED, BUT THE BASIC FACTUM OF USE OF ASSET HAS TO ESTABLISHED. THE INTE RPRETATION OF PHRASE USED FOR THE PURPOSE OF BUSINESS, BY THE COURTS, LAYS DOWN THAT MACHINERY SHOULD BE INSTALLED. THUS, INSTALLATION OF THE MACHINERY IS A PRE-CONDIT ION FOR ACTIVE/PASSIVE USE. WE CAN SUM UP THE POSITION IN OTHER WORDS BY HOLDING THAT WHENEVER AN ASSESSEE PROCURES A PARTICULAR MACHINERY TO BE USED FOR HIS BUSINESS OR PROFESSION, IT WOULD CERTAINLY INVOLVE INSTALLATION OF THE MACHINE WITH ALL INTEGR ATED FACILITIES, TRIAL RUN AND COMMISSIONING. EVEN ASSUMING THAT KEEPING THE MACH INERY READY FOR USE ITSELF IS SUFFICIENT FOR CLAIMING DEPRECIATION, THE ASSESSEE HAS TO ESTABLISH THAT THE MACHINERY WAS BROUGHT TO ITS SITE AND INSTALLATION AND COMMIS SIONING WERE DONE WHICH WAS POSSIBLE ONLY AFTER TRIAL RUN. 7.2. WHERE AN EXEMPTION/DEDUCTION/REBATE/CLAIM IS MADE O N THE BASIS OF AN AGREEMENT ENTERED INTO BETWEEN THE PARTIES, A CLOSE SCRUTINY OF THE TERMS AND CONDITIONS OF SUCH AN AGREEMENT BECOMES VITAL TO DECIDE THE ISSUE OF ALLOWABILITY OR OTHERWISE OF THE CLAIM. IF THE CLAIM OF DEPRECIATION, MADE BY THE AP PELLANT, IS TESTED ON THE TOUCHSTONE OF THE AGREEMENT AND SURROUNDING CIRCUMSTANCES, IT BECOMES ABSOLUTELY CLEAR THAT IN THE CASE UNDER CONSIDERATION BASIC INGREDIENTS OF L EASE ARE MISSING. ISSUE OF WHETHER IT WAS A FINANCE LEASE OR AN OPERATION LEASE COMES LATER. 7.3. IT IS ESTABLISHED PRINCIPLE OF TAXATION JURISPRUDEN CE THAT EVERY BUSINESS MAN HAS FULL RIGHT TO CONDUCT HIS AFFAIRS IN THE MANNER HE WANTS, BECAUSE HE IS THE BEST JUDGE FOR CONDUCTING HIS BUSINESS ACTIVITIES. BUT, IT IS ALSO TRUE THAT HIS IF HIS JUDGMENT AFFECTS THE TAXES, DUE TO THE SOVEREIGN, TAX-OFFICI ALS ARE DUTY BOUND TO DISALLOW CLAIMS MADE BY HIM. WE FIND THAT THE AO HAS PERFOR MED HIS ASSIGNED DUTIES GOING I.TA. NO. 685/MUM/2005 JIK INDUSTRIES LTD. 7 BEHIND THE TRANSACTION TO BRING THE REALITY OF THE TRANSACTION IN RATIONAL MANNER. HE HAS BROUGHT CERTAIN FACTS ON RECORD TO PROVE THAT A SSETS FOR WHICH 100% DEPRECIATION WAS CLAIMED NEVER EXISTED NOR INSTALLED. IF THE AGR EEMENT AND ALL THE CIRCUMSTANCE AND FACTS OF THE CASE ARE ANALYSED ONE THING BECOME CLE AR THAT ASSESSEE-COMPANY FAILED TO PROVE THE EXISTENCE OF MACHINERY. CLINCHING EVIDEN CES LIKE TRANSPORTATION BILLS, INSTALLATION CERTIFICATE, ON-THE-SPOT-INSPECTION-RE PORT, PRODUCTION RESULT OF SHSIL BEFORE AND AFTER THE INSTALLATION OF MACHINERY WERE NEVER PRODUCED BY THE ASSESSEE AT ANY STAGE OF PROCEEDINGS. ASSESSEE HAD APPEARED TW ICE BEFORE THE AO IN THIS REGARD. REASONS FOR NOT SUBMITTING THESE BASIC EVIDENCES BE FORE HIM ARE BEST KNOWN TO IT.FAA HAS GIVEN A CATEGORICAL FINDING OF FACT THAT EVIDEN CE OF INSTALLATION OF THE ASSETS IN QUESTION WERE NOT PRODUCED BEFORE HIM. WE FIND THA T IN THE PAPER BOOK SUBMITTED BY THE ASSESSEE, THERE IS NOT A SINGLE EVIDENCE THAT G OES AGAINST THE FINDINGS GIVEN BY THE AO AND UPHELD BY THE FAA. PHOTOGRAPH OF A CRUSHER, TILL IT IS PROVED THAT SAME WAS INSTALLED AND WAS UTILISED AT PREMISES OF SHSIL; IS NOTHING MORE THAN A PHOTO OF A MACHINERY AND THAT HAS NO RELEVANCE FOR CLAIMING/ G RANTING DEPRECIATION IN THE CASE UNDER CONSIDERATION. CURIOUSLY SHSIL, WHO WAS THE FINAL USER OF THE CRUSHER AS PER THE EVIDENCES PRODUCED, WAS NEVER CONTACTED BY THE ASSESSEE TO PROVE HIS CLAIM. FOR CLAIMING THE DEDUCTION ON ACCOUNT OF DEPRECIATION HAD TO PRODUCE PRIMA-FACIE FACTUAL EVIDENCE, BUT IN OUR OPINION PAPER BOOK SUBMITTED B Y IT DO NOT CONTAIN SUCH EVIDENCES. PAYMENT BY CHEQUE OR AN AGREEMENT CANNO T BE CONSIDERED PRIMARY/LEADING EVIDENCE AS FAR AS TRANSPORTATION/INSTALLATION/ACTU AL UTILISATION OF MACHINERY IS CONCERNED. IN THE CASE UNDER CONSIDERATION BASIC F ACTS ARE NON-EXISTENT-NEITHER INSTALLATION NOR USE IS PROVED. IN ABSENCE OF SUCH VITAL BASIC FACTS CLAIM OF DEPRECIATION OF AN ASSET CANNOT BE ALLOWED. AS PER THE ASSESSEE IT WAS THE OWNER OF THE MACHINERY. IF SO, THEN THERE WAS NO JUSTIFICAT ION FOR THE ASSESSEE IN NOT OBTAINING A CERTIFICATE FROM SHSIL TO THE EFFECT THAT IT (SH SIL) WAS ACTUALLY USING THE MACHINES FOR PRODUCTION. AS PER THE TERM O OF THE AGREEME NT ACTUAL USER WAS TO ISSUE A CERTIFICATE ABOUT THE ASSETS. IN PURSUANCE OF SUCH A CLAUSE ASSESSEE WAS ENTITLED TO GET A CERTIFICATE FROM HIL OR FROM THE SUB-LESSEE. BUT, APPELLANT CHOSE NOT TO OBTAIN AND PRODUCE SUCH A CERTIFICATE. 7.4. IT IS NOTEWORTHY THAT THE MACHINERY WAS MANUFACTURE D AS PER THE REQUIREMENTS OF HIL. FROM THE VARIOUS TERMS OF THE AGREEMENT IT IS CLEAR THAT SUGAR CANE CRUSHERS WERE DESIGNED AS PER THE REQUIREMENTS OF HIL. TERM 9A AND 9B OF THE AGREEMENT ARE WORTH READING IN THIS REGARD. FOR AN ASSET WORTH 90 LAKHS HIL PAID RS.77.4 LAKHS AS INTEREST FREE DEPOSIT AND LATER ON BOUGHT THE ASSET FOR RS.50,000/-.ON THE OTHER HAND ASSESSEE-COMPANY, DEALING IN FOREIGN EXCHANGE, DECI DED TO PURCHASE SUGAR CANE CRASHERS AND CLAIMED100%DEPRECIATION AMOUNTING TO R S. 90 LAKHS. IF THE INTEREST OF SECURITY DEPOSIT IS TAKEN IN ACCOUNT ALONG WITH THE ALLEGED SALE PRICE IT BECOMES CLEAR THAT SURROUNDING CIRCUMSTANCES OF THE TRANSACTIONS DO NOT LEAD TO A LOGICAL OR RATIONAL END. ASSESEE HAS NOT CLAIMED THAT IT HAD, IN EARLIE R OR SUBSEQUENT YEARS, ENTERED IN TO SUCH AGREEMENTS. THOUGH, THIS ITSELF IS NOT A DECID ING FACTOR, YET ALONG WITH OTHER INCRIMINATING FACTS IT BECOMES AN IMPORTANT ISSUE. TAXATION MATTERS ARE DECIDED ON PREPONDERANCE OF PROBABILITIES-HARD CORE EVIDENCE, AS REQUIRED IN CRIMINAL MATTERS ARE NOT NEEDED IN THESE MATTERS. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE UNDER CONSIDERATION WE ARE OF THE OPINION THAT ORDE R OF THE FAA DOES NOT SUFFER FROM ANY INFIRMITY OR ILLEGALITY. 7.5. NOW, WE WOULD LIKE TO DISCUSS THE CASES RELIED UPON /DISCUSSED BY THE AR OF THE ASSESSEE. WE ARE OF THE OPINION THAT THE CASES REL IED UPON BY THE AR ARE DISTINGUISH- I.TA. NO. 685/MUM/2005 JIK INDUSTRIES LTD. 8 ABLE FACTS. IN THE CASE OF ORIX AUTO & BUSINESS SOL UTIONS (SUPRA) THE ISSUE TO BE DECIDED WAS RATE OF DEPRECIATION AND NOT THE NATURE OF THE LEASE AGREEMENT. SIMILARLY, IN THE CASE OF CABLE CORPORATION OF INDIA (SUPRA) T RIBUNAL HAD NOT DOUBTED THE TRANSACTION OF SALE AND LEASE BACK OF THE ASSETS. ON PG. 13 OF THE ORDER OF THE TRIBUNAL HAS OBSERVED AS UNDER: THE EXISTENCE OF ENERGY SAVING DEVICE HAS BEEN EST ABLISHED, ITS USER HAS BEEN ESTABLISHED .. IN THE CASE OF ICICI LTD., THE ISSUE AGAIN WAS SALE AND LEASE BACK TRANSACTION. WE ARE OF THE OPINION THAT FACTS AND CIRCUMSTANCES OF THE PRESENT CASE ARE TOTALLY DIFFERENT CASES RELIED UPON BY THE ASSESSEE-COMPANY. IN SALE AND LEASE BACK AGREEMENTS, VALUATION REPORTS OF THE VALUERS AND EXISTENCE OF A SSETS HAD BEEN ESTABLISHED, WHEREAS IN THE CASE UNDER CONSIDERATION, AS HELD EARLIER, B ASIC FACTS SUPPORTING THE CLAIM OF THE ASSESSEE ARE ABSENT. IN THESE CIRCUMSTANCES, IF A PARTICULAR VIEW HAS BEEN TAKEN IN SALE AND LEASE BACK TRANSACTIONS, IT CANNOT BE FOLLOWED AS A PRECEDENT HERE.AO AS WELL AS FAA HAS GIVEN A CATEGORICAL FACTUAL FINDING ABOUT N ON-EXISTENCE OF THE ASSET. THEREFORE, THEY HAVE RIGHTLY DENIED THE CLAIM MADE BY THE ASSESSEE. 7.6. AS FAR AS ALTERNATE SUBMISSION IS CONCERNED WE ARE OF THE OPINION THAT INCOME OF THE ASSESSEE FOR SUBSEQUENT YEARS WILL HAVE TO BE R EWORKED WITH REGARD TO RENTAL INCOME. FOR THIS LIMITED PURPOSE, WE REMIT BACK TH E MATTER TO THE FILE OF THE AO. AS WE HAVE ENDORSED THE VIEWS OF THE AO AND THE FAA AB OUT NON GENUINENESS OF THE TRANSACTION, THEREFORE, RENTAL INCOME OF SUBSEQUENT YEARS SHOULD NOT BE TAKEN IN TO CONSIDERATION WHILE CALCULATING THE TAXABLE INCOME. IN OUR OPINION BY NOT CONSIDERING THE RENTAL INCOME FOR THE AY UNDER CONSIDERATION AO HAS ADOPTED A FAIR AND JUST METHOD. GROUND NO.1 IS ALLOWED IN PART IN FAVOUR OF THE ASS ESSEE. 8. GROUND NO.3 IS ABOUT DISALLOWANCE OF COMMISSION AMO UNTING TO RS.45,000/-, PAID BY THE APPELLANT, FOR PURCHASING THE MACHINERY.AO A ND FAA HELD THAT AS THE LEASE TRANSACTION WAS NOT GENUINE, SO, COMMISSION PAYMENT COULD NOT BE ALLOWED. IN LIGHT OF THE DISCUSSION HELD IN PARAGRAPHS 7.2.-7.4, WE D ISMISS GROUND NO.3 FILED BY THE ASSESSEE. AS A RESULT, APPEAL FILED BY THE APPELLANT STANDS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD OCTOBER, 2012 SD/- SD/- ( . / D. MANMOHAN) ( !'# / RAJENDRA) / VICE PRESIDENT !$ %& /ACCOUNTANT MEMBER MUMBAI, 2% DATE: 23 RD OCTOBER, 2012 TNMM I.TA. NO. 685/MUM/2005 JIK INDUSTRIES LTD. 9 %!1 %!1 %!1 %!1 - -- - ).3 ).3 ).3 ).3 4!30. 4!30. 4!30. 4!30. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR B BENCH, ITAT, MUMBAI 6. GUARD FILE *3. ). //TRUE COPY// %!1 %!1 %!1 %!1 / BY ORDER, / DY./ASSTT. REGISTRAR , / ITAT, MUMBAI