2005 (4) TMI 536 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of disallowance of Rs. 30,00,037 out of depreciation claimed on leased out LPG Cylinders.
2. Deletion of disallowance of Rs. 19,99,440 out of depreciation claimed on leased out Air Jet Spindle Assembly and Positar Disc.

Issue-wise Detailed Analysis:

1. Deletion of disallowance of Rs. 30,00,037 out of depreciation claimed on leased out LPG Cylinders:

The assessee, engaged in the business of financing vehicles, claimed 100% depreciation on LPG Gas Cylinders worth Rs. 30 lakhs purchased from M/s. Aravalli Cylinders Pvt. Ltd. (MACPL) and leased to M/s. Janta Gases Pvt. Ltd. (MJGPL). The Assessing Officer (AO) disallowed the depreciation claim, asserting the transaction was a sham. The AO highlighted that MACPL's Director denied selling cylinders to the assessee, and the assessee lacked the license required for such transactions under the Explosives Act and Gas Cylinders Rules.

The assessee countered, citing section 6(b) of the Liquefied Petroleum Gas (Regulation and Supply and Distribution) Order, 1993, which permits parallel marketeers to acquire empty cylinders. MJGPL, being a parallel marketeer, authorized MACPL to sell and invoice the cylinders to the assessee. However, MACPL denied receiving such authorization. The AO also noted the assessee's refusal to cross-examine MACPL's Director and concluded the transaction was a device to claim bogus depreciation, referencing the Supreme Court's judgment in MacDowell Co. regarding tax avoidance through colorable devices.

On appeal, the CIT(A) accepted the assessee's explanation, finding the AO's conclusions unfounded. The Tribunal upheld the CIT(A)'s decision, noting the transaction's compliance with the LPG Regulations, the existence of a lease agreement, and the initiation of criminal proceedings by the assessee against MJGPL for defaults. The Tribunal dismissed the AO's reliance on the denied authorization letter and the unavailability of cross-examination, emphasizing the bulk of evidence supporting the transaction.

2. Deletion of disallowance of Rs. 19,99,440 out of depreciation claimed on leased out Air Jet Spindle Assembly and Positar Disc:

The assessee claimed 100% depreciation on Airjet Spindle Assembly and Positar Disc worth Rs. 19,99,440, purchased from M/s. Rajaji Electronics Pvt. Ltd. and leased to M/s. Maruti Syntex (India) Ltd. The AO disallowed the claim, doubting the transaction's genuineness due to the non-appearance of Rajaji Electronics' Director despite summons and arrest warrants, and the lack of sales tax charged on the transaction.

The AO also questioned the absence of evidence for goods receipt and transportation. Despite a letter from Rajaji Electronics confirming the transaction, the AO found the evidence insufficient and concluded the transaction was not genuine.

On appeal, the CIT(A) rejected the AO's findings, accepting the transaction as genuine. The Tribunal upheld the CIT(A)'s decision, noting the letter from Rajaji Electronics, lease agreements, insurance policies, and other supporting documents. The Tribunal emphasized the overwhelming evidence proving the transaction and dismissed the AO's conclusions as unsustainable.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decisions to delete the disallowances of depreciation claims on both the LPG Cylinders and the Airjet Spindle Assembly and Positar Disc, finding the AO's conclusions unsupported by the evidence.