G.K. Kabra, Hyderabad V. ACIT Circle -2(1), Hyderabad

ITA 707/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61931 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 13-09-2011
• Assessment Year: 1996-1997
• Appeal Filed On: 07-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS
• Assessee Lawyers: A V RAGHURAM; S S RAVI
• Keywords: Depreciation; Avoidance of tax; Sham transactions

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 706/HYD/2010 ASSESSMENT YEAR 1993-94 ITA NO. 707/HYD/2010 ASSESSMENT YEAR 1996-97 ITA NO. 708/HYD/2010 ASSESSMENT YEAR 1997-98 SHRI G.K. KABRA HYDERABAD PAN: AAUPK5006A VS. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-2(1), HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SHRI S.S. RAVI AND SHRI A.V. RAGHURAM RESPONDENT BY: SMT. NIVEDITA BISWAS DATE OF HEARING: 23. 0 4 .2012 DATE OF PRONOUNCEMENT: 22.06.2012 O R D E R PER SAKTIJIT DEY, JM: THE APPEALS OF THE ASSESSEE ARE DIRECTED AGAINST TH E COMMON ORDER OF THE CIT(A)-III, HYDERABAD DATED 24. 2.2010 IN ITA NO. 0216 TO 218/CIT(A)-III/08-09 PERTAINING TO ASSE SSMENT YEARS 1993-94, 1996-97 AND 1997-98. SINCE THE ISSUE INVO LVED IN ALL THESE APPEALS IS COMMON AND IDENTICAL THEY ARE CLUB BED, HEARD AND DISPOSED OF TOGETHER IN THIS COMBINED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE ASSESSEE HAS RAISED THE FOLLOWING COMMON GROUND S FOR ALL THE APPEALS. FOR THE SAKE OF CONVENIENCE, THE GROUNDS RAISED IN ITA NO. 706/HYD/2010 FOR A.Y. 1993-94 ARE EXTRACTED HEREUNDER: ITA NOS. 706-708/ HYD/2010 SHRI G.K. KABRA ===================== 2 1. THE ORDER PASSED BY THE CIT(A) IS ERRONEOUS IN LAW AND ON FACTS OF THE CASE. 2. THE CIT(A) ERRED IN HOLDING THAT THE APPELLANT HAS NOT PURCHASED THE LPG CYLINDERS IGNORING THE EVIDEN CES ON RECORD. THE ASSESSING OFFICER HAS NOT GIVEN SUC H FINDING. 3. THE CIT(A) ERRED IN NOT ALLOWING DEPRECIATION CLAIMED OF RS. 17,89,382/- ON THE LPG CYLINDERS IGNORING THE FACT THAT THE CYLINDERS WERE UNDER USE FOR THE PURPOSE OF BUSINESS OF THE APPELLANT. 3. BRIEF FACTS ARE THAT THE ASSESSEE WAS CARRYING ON T HE BUSINESS OF LPG. WHILE COMPUTING THE PROFIT THE AS SESSEE CLAIMED 100% DEPRECIATION ON CYLINDERS USED FOR FILLING LPG . THE ASSESSING OFFICER INITIALLY PROCESSED THE RETURN U/ S. 143(1) OF THE ACT. SUBSEQUENTLY, HOWEVER, ASSESSMENT WAS REOPENE D U/S. 147. THE ASSESSING OFFICER ULTIMATELY COMPLETED THE ASSE SSMENT DISALLOWING DEPRECIATION CLAIMED BY THE ASSESSEE ON THE CYLINDERS ON THE FINDING THAT THE OWNERSHIP OF THE CYLINDERS HAS BEEN TRANSFERRED FROM THE ASSESSEE. THE ASSESSING OFFIC ER BY FOLLOWING THE CIT(A) ORDER FOR THE A.YS. 1994-95 AND 1995-96 CAME TO A CONCLUSION THAT THE ENTIRE TRANSACTION IS A SHAM ON E CREATED FOR AVOIDANCE OF TAX. THE ASSESSEE CHALLENGED THE ASSE SSMENT IN APPEAL BEFORE THE CIT(A). HAVING FAILED TO GET REL IEF BEFORE THE CIT(A), THE ASSESSEE AGITATED ITS CLAIM BY FILING A PPEAL BEFORE THE ITAT. THE ITAT HYDERABAD BENCH IN ITS ORDER DATED 28.12.2007 PASSED IN ITA NOS. 303, 304 AND 305/HYD/2003 RELATI NG TO THE AFORESAID ASSESSMENT YEARS UNDER APPEAL, SET ASIDE THE ASSESSMENT DIRECTING THE ASSESSING OFFICER TO CONDU CT A DETAILED ENQUIRY WITH REGARD TO PURCHASE AND LOANING OF CYLI NDERS. 4. IN COMPLIANCE WITH THE DIRECTION OF THE ITAT, ASSES SMENT PROCEEDINGS WERE INITIATED AGAIN. THE ASSESSEE IN SUPPORT OF ITS CLAIM PRODUCED EVIDENCES TO SHOW THAT THE CYLINDERS WERE ACTUALLY PURCHASED BY HIS PROPRIETARY CONCERN M/S. KABSON CO NTROLS FROM ITA NOS. 706-708/ HYD/2010 SHRI G.K. KABRA ===================== 3 M/S. IDEAL ENGINEERS HYDERABAD PVT. LTD. THE ASSES SEE STATED BEFORE THE ASSESSING OFFICER THAT AFTER PURCHASING THE CYLINDERS THEY ARE FILLED WITH LPG AND GIVEN ON LOAN TO OTHER COMPANIES I.E., M/S. PKL LTD. AND M/S. LATHA ENGINEERING PVT. LTD. AFTER GETTING SECURITY DEPOSIT. THE ASSESSEE SUBMITTED THAT HE B EING THE OWNER OF CYLINDERS IS ENTITLED TO CLAIM 100% DEPRECIATION ON THE COST OF CYLINDERS. THE ASSESSING OFFICER THOUGH ACCEPTED T HE CLAIM OF THE ASSESSEE THAT HE HAD PURCHASED THE CYLINDERS BUT HE NEVERTHELESS DISALLOWED THE CLAIM OF DEPRECIATION ON THE GROUND THAT THOUGH THE ASSESSEE CLAIMS THAT THE CYLINDERS WERE LOANED BUT IN EFFECT IT IS NOTHING BUT SALE OF CYLINDERS. ONCE THE CYLINDERS ARE TRANSFERRED TO THE CUSTOMERS THE ASSESSEE LOSES CONTROL OVER TH EM. HENCE HE CANNOT BE TREATED IS OWNER OF THE CYLINDERS FOR CLA IMING DEPRECIATION. 5. THE ASSESSEE BEING AGGRIEVED, CHALLENGED THE ASSESS MENT ORDER BY FILING AN APPEAL BEFORE THE CIT(A). IN CO URSE OF HEARING OF THE APPEAL BEFORE THE CIT(A), IT WAS CONTENDED THAT THE FINDING OF THE ASSESSING OFFICER THAT GAS SOLD BY THE ASSESSEE IS NEGLIGIBLE IS NOT CORRECT. THE OBSERVATION OF THE ASSESSING OFFI CER THAT CYLINDERS NEED NOT COME BACK TO THE ASSESSEE FOR FILLING OF G AS IS ALSO NOT CORRECT. IT WAS SUBMITTED THAT FOR FILLING OF GAS PERMISSION HAS TO BE TAKEN FROM THE EXPLOSIVES DEPARTMENT AND THE CYL INDERS LOANED CAN BE FILLED UP ONLY WITH THE FILLING POINT WHICH HAS BEEN APPROVED BY THE EXPLOSIVES DEPARTMENT. THE ASSESSE E CONTENDED THAT THE TERMS AND CONDITIONS OF THE AGREEMENT FOR LOANING OF CYLINDERS CLEARLY PROVE THAT THE ASSESSEE IS THE OW NER OF THE CYLINDERS AND THE CYLINDERS HAVE BEEN GIVEN TO CUST OMERS ONLY ON LOAN BASIS AGAINST SECURITY DEPOSIT. THE CIT(A) CA LLED FOR FURTHER DETAILS FROM THE ASSESSEE WITH REGARD TO AGREEMENTS WITH DIFFERENT CONCERNS, FOR LOANING OF CYLINDERS, DURATION FOR WH ICH THE CYLINDERS SHALL BE GIVEN ON LOAN, THE RATE OF SECURITY DEPOSI T PER CYLINDER, PURCHASE DETAILS OF THE CYLINDER, ETC. IN RESPONSE TO THE QUERIES ITA NOS. 706-708/ HYD/2010 SHRI G.K. KABRA ===================== 4 MADE BY THE CIT(A) THE ASSESSEE FURNISHED THE DETAI LS. THE ASSESSEE ALSO CONTENDED THAT WHEN A CUSTOMER WANTS GAS HE BRINGS THE EMPTY CYLINDER TO THE ASSESSEE AND THE A SSESSEE FILLS GAS IN THE CYLINDER ON PAYMENT OF CHARGES FOR THE GAS. THE ASSESSEE SUBMITTED THAT THE CYLINDERS ARE EITHER IN POSSESSI ON OF THE CONCERNS TO WHOM IT WAS GIVEN AGAINST SECURITY DEPO SIT OR WITH THE CUSTOMERS. THE CIT(A) AFTER CONSIDERING THE CONTE NTIONS OF THE ASSESSEE OBSERVED THAT GAS CYLINDERS WERE PURCHASED FROM M/S. IDEAL ENGINEERS HYDERABAD PVT. LTD. IN THE NAME OF M/S. KABSON CONTROLS. THE CIT(A) FOUND FROM THE PURCHASE INVOI CES THAT NOTHING HAS BEEN MENTIONED AGAINST COLUMN 'DOCUMENT S RR/LR/THROUGH'. SIMILARLY NOTHING HAS BEEN MENTION ED AGAINST PACKING AND DELIVERY CHARGES. NO MENTION HAS ALSO BEEN MADE REGARDING TRANSPORTATION OF THE CYLINDERS. ON THE BASIS OF THE AFORESAID FACTS THE CIT(A) CONCLUDED THAT THE ASSES SEE HAS MERELY PROCURED THE CYLINDERS FROM A RELATED CONCERN AND H AS ALSO PROCURED THE INVOICES. THE CIT(A) REFUSED TO ACCEP T THE FACT THAT THE ASSESSEE HAS ACTUALLY PURCHASED THE CYLINDERS A S MENTIONED IN THE INVOICES. THE CIT(A), THEREFORE, CAME TO THE C ONCLUSION THAT THE ASSESSEE HAVING NOT PURCHASED THE CYLINDERS IS NOT ENTITLED TO CLAIM DEPRECATION ON THEM. THE CIT(A) FURTHER OBS ERVED THAT EVEN IF IT IS ACCEPTED THAT THE ASSESSEE HAS PURCHASED T HE CYLINDERS STILL THEN THE ASSESSEE WOULD NOT BE ENTITLED TO CLAIM DE PRECIATION ON THE CYLINDERS SINCE THEY HAVE BEEN TRANSFERRED/SOLD TO THE ASSOCIATE CONCERN PRIMUS KASSON LTD. AND OTHER ASSO CIATE CONCERNS. THE CIT(A) HAS OBSERVED THAT THE TERMS A ND CONDITIONS PRINTED ON THE SUBSCRIPTION VOUCHERS DOES NOT MENT ION ANYTHING ABOUT THE DURATION/PERIOD OF LOANING THE CYLINDERS. 6. THE CIT(A) CONCLUDED THAT IN THE ABSENCE OF THE DURATION/PERIOD OF LOANING MENTIONED IN THE TERMS A ND CONDITIONS IT HAS TO BE PRESUMED THAT THE ASSESSEE HAS TRANSFE RRED THE CYLINDERS ONCE FOR ALL TO THE CUSTOMERS/ASSOCIATE C ONCERNS AGAINST ITA NOS. 706-708/ HYD/2010 SHRI G.K. KABRA ===================== 5 THE SO CALLED SECURITY DEPOSIT AMOUNT WHICH IS MORE THAN THE COST PRICE OF THE CYLINDERS. THEREFORE, NO DEPRECIATION CAN BE ALLOWED TO THE ASSESSEE ON THE CYLINDERS. THE CIT(A) FURTHER OBSERVED THAT FOR THE A.YS. 1994-95 AND 1995-96 IN ITA NOS. 169 & 170 /HYD/2000 DATED 4.6.2002, THE ITAT HYDERABAD BENCH IN ASSESSE ES OWN CASE HAS HELD THE TRANSACTION OF PURCHASE AND LOANING OF CYLINDERS AS SHAM TRANSACTION AND SO LONG AS THE AFORESAID ORDER S OF THE ITAT STAND IT CAN BE MADE APPLICABLE TO THE ASSESSMENT Y EAR UNDER DISPUTE SINCE THERE IS NO CHANGE IN THE FACTS AND C IRCUMSTANCES. ON THE BASIS OF THE AFORESAID FINDING, THE CIT(A) S USTAINED THE ORDER OF THE ASSESSMENT. 7. THE LEARNED AR ASSAILING THE FINDING OF THE REVENUE AUTHORITIES SUBMITTED THAT THE ITAT WHILE CONSIDERI NG THE ASSESSEE'S EARLIER APPEAL FOR ASSESSMENT YEAR UNDER DISPUTE HAS CATEGORICALLY HELD THAT ON THE BASIS OF THE FINDING OF THE ITAT IN A.YS. 1994-95 AND 1995-96 IT CANNOT BE SAID THAT PU RCHASING AND LOANING OF CYLINDERS IN THE ASSESSMENT YEAR UNDER D ISPUTE ARE ALSO SHAM TRANSACTIONS WHEN THERE IS NO MATERIAL ON RECO RD TO HOLD THAT THE ASSESSEE HAS NOT ACTUALLY PURCHASED THE CY LINDER. THE ITAT, THEREFORE, DIRECTED THE ASSESSING OFFICER TO CONDUCT NECESSARY INVESTIGATION AND FIND OUT WHETHER THE AS SESSEE HAD ACTUALLY PURCHASED THE CYLINDERS. THE LEARNED AR S UBMITTED THAT WHILE SETTING ASIDE, THE ITAT HAD ALSO OBSERVED TH AT IF ON THE BASIS OF ENQUIRY IT IS FOUND THAT THE ASSESSEE HAS ACTUAL LY PURCHASED THE CYLINDERS, THEN DEPRECIATION HAS TO BE ALLOWED TO T HE ASSESSEE IN VIEW OF THE ITAT SPECIAL BENCH DECISION IN THE CASE OF DETECTIVE DEVICES PVT. LTD. REPORTED IN 22 ITD 9. THE LEARNE D AR REFERRING TO PAGES 11 TO 46 OF THE PAPER BOOK CONTENDED THAT THE PURCHASE INVOICES CLEARLY ESTABLISH THE FACT THAT THE ASSESS EE HAD PURCHASED THE CYLINDERS. REFERRING TO THE DELIVERY CHALLAN A ND GATE PASS WHICH ARE AT PAGES 87 TO 131, THE LEARNED AR CONTEN DED THAT THEY PROVE PURCHASE OF CYLINDERS BY THE ASSESSEE. REFER RING TO THE ITA NOS. 706-708/ HYD/2010 SHRI G.K. KABRA ===================== 6 SUBSCRIPTION VOUCHERS, THE LEARNED AR CONTENDED THA T THE CYLINDER ALWAYS REMAINS THE PROPERTY OF THE ASSESSEE WHICH I S GIVEN ON LOAN AGAINST SECURITY DEPOSIT AND SECURITY DEPOSIT HAS T O BE REFUNDED ON SURRENDER OF CYLINDER ALONG WITH SUBSCRIPTION VO UCHERS. THE LEARNED AR SUBMITTED THAT THOUGH THE ASSESSING OFFI CER ON THE BASIS OF EVIDENCES PRODUCED BEFORE HIM HAS APPARENT LY ACCEPTED THE FACT THAT THE ASSESSEE HAS PURCHASED THE CYLIND ERS, HE NEVERTHELESS DISALLOWED DEPRECIATION ON THEM ON AN INCORRECT FINDING OF FACT THAT THE ASSESSEE HAS TRANSFERRED O WNERSHIP OF THE CYLINDERS TO THE OTHER CONCERNS OR THE CUSTOMERS. THE LEARNED AR CONTENDED THAT WHEN THE ASSESSEE HAS PRODUCED ALL E VIDENCES TO PROVE THE PURCHASE OF CYLINDERS AND WHICH WAS ALSO ACCEPTED BY THE ASSESSING OFFICER, THE CIT(A) WAS NOT JUSTIFIED IN DISBELIEVING THE PURCHASE OF CYLINDERS ONLY ON DOUBT AND SUSPICI ON. 8. THE LEARNED AR CONTENDED THAT THE ITAT HAS SET ASID E THE ASSESSMENT ONLY FOR THE LIMITED PURPOSE OF FINDING OUT AS TO WHETHER THE ASSESSEE HAD PURCHASED THE CYLINDERS OR NOT. ONCE IT IS FOUND THAT THE ASSESSEE HAD PURCHASED THE CYLIND ERS THEN DEPRECIATION HAS TO BE ALLOWED TO THE ASSESSEE IN V IEW OF THE CLEAR FINDING OF THE ITAT WHILE SETTING ASIDE THE ASSESSM ENT. THE LEARNED AR ARGUED THAT THE ORDER PASSED BY THE ITAT BEING AN ORDER OF LIMITED REMAND ONLY TO FIND OUT AS TO WHET HER THE ASSESSEE HAS PURCHASED THE CYLINDERS OR NOT, THE REVENUE AUT HORITIES CANNOT RE-EXAMINE THE ALLOWABILITY OF DEPRECIATION ON OTHER CONSIDERATIONS ONCE IT HAS BEEN ESTABLISHED THAT TH E ASSESSEE HAD PURCHASED CYLINDERS. IN SUPPORT OF SUCH CONTENTION , THE LEARNED AR RELIED UPON TWO JUDGEMENTS OF HONBLE SUPREME CO URT IN THE CASE OF K.P. DWIVEDI VS. STATE OF UP & ORS. REPORTE D IN (2003) 12 SCC 572 AND RAJA GOPAL (DEAD) BY L/R. KISHAN GOPAL & ANR. (AIR 2003 SC 4319). THE LEARNED AR CONTENDED THAT THE F ACT OF PURCHASE OF CYLINDERS HAVING BEEN PROVED ON RECORD FOR ASSESSMENT YEAR UNDER DISPUTE THE REVENUE AUTHORITI ES ARE NOT ITA NOS. 706-708/ HYD/2010 SHRI G.K. KABRA ===================== 7 JUSTIFIED IN RELYING UPON THE ORDER OF THE ITAT PAS SED IN ASSESSEES OWN CASE FOR A.YS. 1994-95 AND 1995-96. 9. THE LEARNED DR SUPPORTING THE ORDERS OF THE REVENUE AUTHORITIES CONTENDED THAT THE ASSESSEE HAS FAILED TO CONCLUSIVELY PROVE THE FACT OF PURCHASE OF CYLINDERS, DEPRECIATI ON CANNOT BE ALLOWED TO THE ASSESSEE. IT WAS ALSO CONTENTION OF THE LEARNED DR THAT IF THE PROCESS OF SO CALLED LOANING OF THE CYL INDERS WILL BE EXAMINED THEN THE ONLY CONCLUSION ONE WILL ARRIVE A T IS THAT THE ASSESSEE HAS NO CONTROL OVER THE CYLINDERS ONCE THE Y HAVE BEEN GIVEN TO OTHER CONCERNS OR CUSTOMERS. 10. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MAT ERIAL ON RECORD. AT THE OUTSET, IT IS RELEVANT TO NOTE W HAT EXACTLY IS THE DIRECTION OF THE ITAT WHILE SETTING ASIDE THE ASSES SMENT MADE FOR EARLIER ASSESSMENT YEARS UNDER DISPUTE. THE SAME I S EXTRACTED HEREUNDER FOR THE SAKE OF CONVENIENCE: '9. IN THE CASE BEFORE US, THE ASSESSING OFFICER C LAIMS THAT THE OWNERSHIP OF THE CYLINDERS HAS BEEN TRANSFERRED FRO M THE ASSESSEE. THEREAFTER, REFERRING TO THE DECISION OF THE CAT(A) FOR ASST. YEARS 1994~95 AND 1995-96, THE AO CAME TO THE CONCLUSION THAT THE ENTIRE TRANSACTION WAS A PRE-DESIGNED SCHEME WHICH SERVED NO BUSINESS PURPOSE APART FROM AVOIDANCE OF TAX. FROM THE ORDERS OF THE AO AND THE CIT(A), IT IS CLEAR THAT NO INVESTIG ATION OR ENQUIRY WAS MADE WITH REGARD TO THE CLAIM OF THE ASSESSEE T OWARDS PURCHASE OF CYLINDERS FOR THE ASST. YEARS UNDER CON SIDERATION. NO DOUBT, FOR ASST. YEARS 1994-95 AND 1995-96, AFTER D ETAILED ENQUIRY WITH REGARD TO PURCHASE OF CYLINDERS, THE LOWER AUT HORITIES FOUND THAT THE ENTIRE TRANSACTION WAS A SHAM ONE FOR AVOI DANCE OF TAX. THIS TRIBUNAL ALSO FOUND THAT THE ENTIRE TRANSACTIO N WAS SHAM AND, THEREFORE, THE, ASSESSEE IS NOT ENTITLED FOR DEPREC ATION. IT IS WELL SETTLED PRINCIPLE OF LAW THAT EACH ASSESSMENT YEAR IS SEPARATE AND DISTINCT. THEREFORE, WHEN THE ASSESSEE SPECIFICALLY CLAIMS THAT HE PURCHASED CYLINDERS FOR THE ASST. YEARS UNDER CONSI DERATION, THE AO IS BOUND TO EXAMINE AND FIND OUT WHETHER THE ASS ESSEE IN FACT PURCHASED CYLINDERS AND SUPPLIED THE SAME TO THE CU STOMERS AS CLAIMED. INSTEAD OF MAKING SUCH ENQUIRY, THE AO SIM PLY APPLIED THE CONCLUSION DRAWN BY THE CIT(A) FOR ASST. YEARS 1994-95 AND 1995-96. SUCH CONCLUSION CAN BE .DRAWN ONLY AFTER M AKING PROPER ENQUIRY WITH REGARD TO THE TRANSACTION OF THE ASSES SEE. IF THE TRANSACTION WAS FOUND TO BE FALSE AND SHAM FOR THE PURPOSE OF ITA NOS. 706-708/ HYD/2010 SHRI G.K. KABRA ===================== 8 AVOIDANCE OF TAXATION, CERTAINLY THE ASSESSEE IS NO T ENTITLED FOR ANY DEPRECIATION AT ALL AS HELD BY THIS TRIBUNAL. THERE CANNOT BE ANY PRESUMPTION THAT THE TRANSACTION OF PURCHASE AND SU PPLY OF CYLINDERS IS SHAM, MERELY BECAUSE IT WAS FOUND TO B E FALSE FOR ASST. YEAR 1994-95 OR 1995-96. THE AO HAS TO MAKE AN INDE PENDENT ENQUIRY AND COME TO A CONCLUSION ON THE BASIS OF TH E MATERIAL AVAILABLE ON RECORD. MOREOVER, AS HELD BY THE JURI SDICTIONAL HIGH COURT IN THE CASE OF PONDURU VENKATA REDDY (SUPRA), THE SUSPENSION OF THE ORDER OF THIS TRIBUNAL WOULD ONLY AFFECT THE EXECUTION AND IMPLEMENTATION OF THE ORDER. SO LONG AS THE ORDER STANDS, IT IS A DICTUM. THEREFORE, THE PRINCIPLE LA ID DOWN BY A CO- ORDINATE BENCH OF THIS TRIBUNAL HAS TO BE APPLIED P ROVIDED PROPER ENQUIRY IS CONDUCTED WITH REGARD TO THE PURCHASE AN D SUPPLY OF GAS CYLINDERS AS CLAIMED BY THE ASSESSEE AND IT WAS FOUND THAT THE TRANSACTION OF PURCHASE IS FALSE OR SHAM. FOR THE A SST. YEARS UNDER CONSIDERATION, IF THE ASSESSEE IS ABLE TO PROVE THA T HE HAS IN FACT PURCHASED CYLINDERS AND LOANED THE SAME TO CUSTOMER S AS CLAIMED, THEN WE CANNOT TERM THE TRANSACTION AS A SHAM TRANS ACTION. IN SUCH A CASE, THE ASSESSEE MAY BE ENTITLED FOR DEPRE CIATION AS HELD BY THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE O F DETECTIVE DEVICES PVT. LTD. (SUPRA). THEREFORE, IN OUR OPINIO N, A DETAILED INVESTIGATION IS REQUIRED WITH REGARD TO PURCHASE A ND LOANING OF CYLINDERS AND FOUND OUT WHETHER IN FACT THE ASSESSE E HAS PURCHASED CYLINDERS OR NOT. SINCE SUCH AN ENQUIRY W AS NOT DONE AND PROPER MATERIALS WERE NOT BROUGHT ON RECORD, IN OUR OPINION, THE AO SHALL RE-EXAMINE THE MATTER AFRESH AFTER MAK ING PROPER ENQUIRY.' 11. AS CAN BE SEEN FROM THE AFORESAID ORDER, THE ITAT H AS DIRECTED THE ASSESSING OFFICER TO MAKE NECESSARY IN VESTIGATION TO ASCERTAIN WHETHER THE ASSESSEE HAS ACTUALLY PURCHAS ED THE CYLINDERS. THE ITAT FURTHER OBSERVED IN THE EVENT THE ASSESSEE IS FOUND TO HAVE PURCHASED THE CYLINDERS HE WILL BE EN TITLED FOR DEPRECIATION IN VIEW OF THE ITAT SPECIAL BENCH DECI SION IN THE CASE OF DETECTIVE DEVICES PVT. LTD. (SUPRA). THEREFORE, IN THE CONTEXT OF THE AFORESAID DIRECTION OF THE ITAT, IT HAS TO BE S EEN WHETHER THE ASSESSEE HAS ESTABLISHED THE FACT OF PURCHASE OF CY LINDERS. THE ASSESSING OFFICER IN THE ASSESSMENT ORDER HAS OBSER VED THAT M/S. KABSON CONTROLS IS A PROPRIETARY CONCERN OF THE ASS ESSEE. PURCHASE INVOICES AT PAGES 11 TO 46 OF THE PAPER BO OK INDICATE THAT CYLINDERS HAVE BEEN PURCHASED BY M/S. KABSON C ONTROLS FROM THE MANUFACTURING CONCERNS. DELIVERY CHALLAN ALONG WITH GATE ITA NOS. 706-708/ HYD/2010 SHRI G.K. KABRA ===================== 9 PASS PLACED AT PAGES 87 TO 131 SHOW THAT THE CYLIND ERS WERE CONSIGNED TO M/S. KABSON CONTROLS. THE PURCHASE OF CYLINDERS HAS ALSO BEEN REFLECTED IN THE BOOKS OF THE ASSESSE E WHICH IS EVIDENT FROM THE LEDGER EXTRACT AT PAGES 47 TO 51 O F THE PAPER BOOK. AFTER THOROUGHLY EXAMINING ALL THESE EVIDENC ES PRODUCED BEFORE HIM THE ASSESSING OFFICER ACCEPTED THE FACT THAT THE ASSESSEE HAS PURCHASED THE CYLINDERS. EVEN ON THE FACE OF SUCH EVIDENCES PRODUCED BY THE ASSESSEE, THE CIT(A) ON T HE BASIS OF SOME IRRELEVANT CONSIDERATIONS LIKE CERTAIN COLUMNS IN THE INVOICES KEPT BLANK, CAME TO A CONCLUSION THAT THE ASSESSEE HAD NOT PURCHASED THE CYLINDERS BUT HAS PROCURED THE INVOIC ES FROM THE SELLERS WHICH THE CIT(A) ALLEGES TO BE A SISTER CON CERN OF THE ASSESSEE. IN OUR VIEW SUCH A FINDING OF THE CIT(A) IS MERELY ON DOUBT AND SUSPICION WITHOUT BEING SUPPORTED BY COGE NT EVIDENCE. 12. THE ASSESSING OFFICER AFTER EXAMINING THE INVOICES AND OTHER DOCUMENTS HAD ACCEPTED THE FACT THAT THE ASSESSEE H AD PURCHASED THE CYLINDERS. IF THE CIT(A) WAS NOT SATISFIED WIT H THE INVOICES, HE SHOULD HAVE BROUGHT MATERIAL ON RECORD TO PROVE THA T THE PURCHASE INVOICES WERE NOT GENUINE. WITHOUT DOING SO, THE C IT(A) CANNOT PRESUME THAT THE INVOICES WERE PROCURED BY THE ASSE SSEE FROM THE SISTER CONCERN. FROM THE FACTS AVAILABLE ON RECORD , IT CAN BE SAID THAT THE ASSESSEE HAD BEEN ABLE TO PROVE THAT HE HA S PURCHASED THE CYLINDERS. ONCE IT IS ESTABLISHED THAT THE ASS ESSEE HAD PURCHASED THE CYLINDERS THEN HE REMAINS ENTITLED TO CLAIM DEPRECIATION ON THEM AS PER THE DECISION OF THE ITA T SPECIAL BENCH IN THE CASE OF DETECTIVE DEVICES PVT. LTD. (SUPRA). IT IS THE VIEW EXPRESSED BY THE ITAT HYDERABAD BENCH IN ITS EARLIE R ORDER DATED 28.12.2007 WHILE SETTING ASIDE THE ASSESSMENT ONLY FOR ASCERTAINING THE FACT OF PURCHASE OF CYLINDERS BY T HE ASSESSEE. 13. WE FIND FORCE IN THE CONTENTIONS OF THE LEARNED AR THAT THE ITAT HAD REMANDED THE MATTER ONLY FOR THE LIMITED P URPOSE OF ITA NOS. 706-708/ HYD/2010 SHRI G.K. KABRA ===================== 10 FINDING OUT WHETHER THE ASSESSEE HAS PURCHASED THE CYLINDERS OR NOT. THEREFORE, IT WAS NOT OPEN FOR THE ASSESSING OFFICER TO AGAIN GO INTO THE ISSUE OF LOANING OF CYLINDERS. SUCH CO NTENTION OF THE LEARNED AR IS ALSO SUPPORTED BY THE DECISIONS OF TH E HONBLE SUPREME COURT WHICH WERE CITED BEFORE US. EVEN ASS UMING FOR THE ARGUMENT SAKE, THAT IT IS NOT A LIMITED REMAND BY T HE ITAT AND THE ENTIRE ISSUE OF PURCHASE AND LOANING OF CYLINDERS I S OPEN BEFORE THE ASSESSING OFFICER, STILL THEN THE REVENUE HAS FAILE D TO ESTABLISH THE FACT THAT THE ASSESSEE HAS NOT GIVEN THE CYLINDERS ON LOAN BUT HAD SOLD THEM. IT HAS BEEN THE CONTENTION OF THE ASSES SEE THROUGHOUT THAT THE CYLINDERS WERE GIVEN ON LOAN EITHER TO THE DISTRIBUTORS OR THE CUSTOMERS AGAINST SECURITY DEPOSIT. THE LEARNE D AR REFERRING TO THE TERMS AND CONDITIONS MENTIONED IN THE SUBSCR IPTION VOUCHERS WHICH IS AT PAGE 76 OF THE PAPER BOOK WAS ABLE TO DEMONSTRATE THAT THE OWNERSHIP OF THE CYLINDERS ALW AYS REMAIN WITH THE ASSESSEE EVEN AFTER LOANING OF THE CYLINDE RS AGAINST SECURITY DEPOSIT. CLAUSE (3) OF THE TERMS AND COND ITIONS MENTIONED IN THE SUBSCRIPTION VOUCHERS CLEARLY BRIN GS OUT THE FACT THAT THE CONSUMERS HAVE NO RIGHT OVER THE CYLINDERS AND THE CONSUMER CANNOT SELL, MORTGAGE OR OTHERWISE DISPOSE OF THE CYLINDERS. IT HAS FURTHER BEEN PROVIDED THAT THE S UBSCRIBER CAN TAKE REFUND OF THE SECURITY DEPOSIT ON SURRENDERING CYLINDER ALONG WITH THE SUBSCRIPTION VOUCHER. THESE FACT CLEARLY DEMONSTRATE THAT THERE IS NO SALE OF CYLINDERS BY THE ASSESSEE EITHER TO THE DISTRIBUTORS OR CUSTOMERS. HAD IT BEEN THE SALE OF CYLINDERS AS ALLEGED BY THE REVENUE AUTHORITIES THEN THE ASSESSE E WILL BE UNDER NO OBLIGATION TO REFUND THE SECURITY DEPOSIT AND TH ERE WILL BE NO RESTRICTION ON THE CONSUMER ALSO EITHER TO SELL OR MORTGAGE THE CYLINDER. IN CASE OF DETECTIVE DEVICES PVT. LTD. ( SUPRA), THE ITAT SPECIAL BENCH WHILE CONSIDERING SIMILAR NATURE OF C ONTRACT HELD THAT THERE IS NO TRANSFER OF OWNERSHIP OF CYLINDERS FROM THE ASSESSEE TO THE DISTRIBUTORS OR CONSUMERS. IN THE AFORESAID VIEW OF ITA NOS. 706-708/ HYD/2010 SHRI G.K. KABRA ===================== 11 THE MATTER, WE HOLD THAT THE ASSESSEE BEING THE OWN ER OF THE CYLINDERS IS ENTITLED TO CLAIM DEPRECIATION ON THEM . THE DECISION OF THE ITAT IN CASE OF THE ASSESSEE FOR A.YS. 1994-95 AND 1995-96 IS NOT APPLICABLE TO THE FACTS INVOLVED IN THE PRESENT APPEALS FOR THE SIMPLE REASON THAT IN THE APPEALS BEFORE US THE ASS ESSEE HAS BEEN ABLE TO PROVE THAT HE HAS PURCHASED THE CYLINDERS O N WHICH DEPRECIATION WAS CLAIMED. WE, THEREFORE, DIRECT TH E ASSESSING OFFICER TO ALLOW DEPRECIATION ON THE CYLINDERS AS C LAIMED BY THE ASSESSEE. THE GROUNDS RAISED BY THE ASSESSEE ARE A LLOWED. 14. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JUNE, 2012. SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER SD/ - (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED THE 22 ND JUNE, 2012 COPY FORWARDED TO: 1. SHRI G.K. KABRA, C/O. M/S. R.B. KABRA & CO., CHA RTERED ACCOUNTANTS, 4-1-917 TILAK ROAD, HYDERABAD-500 001. 2. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-2(1 ), HYDERABAD. 3. THE CIT(A)-III, HYDERABAD. 4. THE CIT-II, HYDERABAD. 5. THE DR A BENCH, ITAT, HYDERABAD. TPRAO