THE COMM OF INCOME TAX HYD V. KHAITAN TIBREWALA ELEC LTD HYD

ITTA/34/2003

AI Insights

This case involves an appeal under Section 260A of the Income Tax Act by the assessee, a company engaged in manufacturing fans and other electrical items, against the order of the Income Tax Appellate Tribunal (the Tribunal). The dispute centered on the depreciation claimed on Beer Keggs, which were allegedly purchased and leased out, but were later found to be disposed of as scrap shortly after their acquisition. The Assessing Officer disallowed the depreciation during a block assessment following a search operation, suspecting the genuineness of the transaction. The Tribunal reversed this decision, leading to the present appeal. The key legal issue was the genuineness of the transaction concerning the Beer Keggs and the appropriateness of the depreciation claimed.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 743178 (HC-HYDERABAD)
• Appeal Type: Others
• Pronouncement Date: 27-08-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act, Negotiable Instruments Act
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: Y RATNAKAR
• Assessee Lawyers: J V PRASAD
• Keywords: Block assessment; Depreciation; Lease; Scrap; Sham transaction; Beer Keggs
• Section: 260A; 138

Judgement Text

"HON’BLE SRI JUSTICE L. NARASIMHA REDDY AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A No.34 of 2003 JUDGMENT:- (Per Hon’ble Sri Justice L.Narasimha Reddy) This appeal under Section 260A of the Income Tax Act is filed by the assessee, feeling aggrieved by the order, dated 30.10.2000, passed by the Hyderabad Bench ‘A’ of the Income Tax Appellate Tribunal (for short ‘the Tribunal’) in IT (SS)A/283/Hyd/1997. It is in relation to a block assessment made as a result of search conducted on 20.11.1996. The appellant is a Company manufacturing fans and other electrical items as its main activity, and it is assessed to income tax. In the returns submitted for the assessment year 1995-96, it claimed depreciation of Rs.50 lakhs being cost of 1005 Beer Keggs. According to it, the Beer Keggs were purchased at a cost of Rs.50,00,176/- from M/s.Trans-Asia Private Limited and thereafter, they were given on lease to M/s. Rajasthan Beverages Limited (for short M/s.R.B.L.) for a period of 72 months. The depreciation so claimed was allowed by the Assessing Officer. A search was conducted in the premises of the Managing Director of the appellant company on 20.11.1996. A doubt was entertained as to the genuinity of the transaction of purchasing of Beer Keggs. The matter was entrusted to the Additional Director of Income Tax at New Delhi for verification and he, in turn, caused the recording of statements from the Office of M/s.R.B.L. It emerged that the Beer Keggs were disposed of as scrap between April and October, 1995 by M/s.R.B.L. Taking note of these and other aspects that emerged as a result of search, a block assessment for the period between 1987- 88 and 1997-98 was made. The depreciation in relation to Beer Keggs was disallowed by the Assessing Officer. The same was challenged in appeal before the Tribunal. The Tribunal allowed the appeal. Hence, this further appeal. Sri J.V.Prasad, learned counsel for the appellant, submits that even if the undisputed facts related to the transaction of the alleged purchase and leasing of Beer Keggs were taken into account, it emerges that it was a sham transaction and that there was absolutely no basis for the Tribunal in reversing the order passed by the Assessing Officer. He contends that when the lease itself was for a period of three years, the question of the leased material being sold as scrap hardly within one month, does not arise. He contends that to cover up the very surreptitious transaction, several efforts were made and all of them were proved to be untenable. Learned counsel submits that the observation made by the Tribunal that the findings were recorded by the Assessing Officer without giving opportunity to the respondent is totally incorrect. Sri Y.Ratnakar, learned counsel for the respondent, on the other hand, submits that the transaction of purchase of Beer Keggs as well as leasing the same to M/s.R.B.L. are borne out by record and only on being satisfied about the genuinity thereof, the Assessing Officer allowed the depreciation in the regular assessment. He contends that a roving enquiry, without any reference to the respondent, was undertaken by the Department and the Assessing Officer has made observations contrary to record and disallowed the depreciation. He submits that the Tribunal has applied the correct principles of law and arrived at proper conclusion. Another facet of the argument of the learned counsel for the respondent is that though the respondent availed the benefit of depreciation of Rs.50 lakhs, in a way, income tax was paid on a higher sum which was stipulated for rent of 72 months and that his client has no objection for levy of tax on the lease amount, even if any part of it has skipped the assessment. In the regular assessment, the depreciation claimed by the appellant for the amount representing consideration for payment of Beer Keggs was allowed obviously because the cost of each of them was less than Rs.5000/- or because it was otherwise in accordance with law. In the course of search conducted in the year 1996, several aspects were noticed. Serious doubt was entertained as to the genuinity of the transaction of purchase of Beer Keggs. Though the principal activity of the respondent was in the field of electrical goods, the depreciation was claimed in respect of items pertaining to manufacturing and sale of intoxicants. Even at the block assessment level, objection was not raised for undertaking such an activity by the respondent. The doubt was only about the genuinity of the transaction. Beer Keggs were said to have been purchased in the month of March 1995 and immediately, they were said to have been leased to M/s.B.R.L. for a period of 72 months. What was surprising was that the Managing Director of M/s.B.R.L., the lessee, stated that the Beer Keggs taken on lease from the respondent were sold as scrap between April and October, 1995. It is just un-understandable as to how within one month, brand new Beer Keggs have become scrap. By referring to those and other facts, the Assessing Officer passed an order of block assessment disallowing the depreciation. The Tribunal was mostly impressed by the fact that the respondent filed a suit for recovery of the amount of lease representing rent against M/s.R.B.L. and that complaints under Section 138 of the Negotiable Instruments Act were also filed. It failed to take note of the fact that the suit as well as the complaints were filed subsequent to the search, almost as an after thought. The observation that the statements said to have been recorded from the officials of M/s.R.B.L. were not put to the respondent, is equally untenable. Nowhere in the block assessment proceedings, the respondent made a request to furnish any material pertaining to the verification of the genuinity of the transaction. There was absolutely no basis for the Tribunal in reversing the order passed by the Assessing Officer. In the ordinary course, we should allow the appeal and set aside the order passed by the Tribunal. However, across the Bar, learned counsel for the respondent submitted that his client is agreeable to bring the entire lease amount covered by the lease deed to tax. We are informed that the lease amount for three years is more than the cost of the Beer Keggs and in such an event, it would wipe the benefits that have accrued to the respondent on account of depreciation. We, therefore, dispose of the appeal upholding the order passed by the Tribunal by recording a statement made on behalf of the respondent that it is agreeable to bring the lease amount for the entire period of 72 months being Rs.56,58,000/- under the purview of the tax. If the said amount has been subjected to tax, the Assessing Officer shall pass necessary orders of implementation in this regard. There shall be no order as to costs. Miscellaneous petitions, if any, filed in this appeal shall also stand disposed of. _______________________ L. NARASIMHA REDDY, J ________________________ CHALLA KODANDA RAM, J Date:27.08.2014 kdl "