2012 (9) TMI 945 - HC - Income Tax

Depreciation on sale and lease back contracts and lease contracts disallowed - Held that - In the absence of proof of suppliers and there being no attempt on the part of the assessee to establish the said fact that there was in fact a sale in its favour, rightly, the authorities rejected the case of the assessee. Mere production of lease agreement and copies of invoices indicating alleged sale in favour of the assessee would not be a sufficient ground to grant the relief. A perusal of the documents relied on by the assessee clearly show that the assessee could not in any manner substantiate its case that there had been purchase of machineries for the purpose of effecting lease in favour of the lessees. As rightly pointed out by the authorities below, the transactions were purely financial transactions and they were given the name of the lease transactions through the lease agreements. There being no error in the reasoning given by the Tribunal, we have no hesitation in rejecting the case of the assessee, thereby confirming the order of the Tribunal.

Issues Involved:
1. Disallowance of depreciation on sale and lease back contracts and lease contracts.
2. Justification for disallowing depreciation based on the traceability of the supplier or other technical reasons.
3. Valuation of assets leased in specific cases.

Detailed Analysis:

Issue 1: Disallowance of Depreciation on Sale and Lease Back Contracts and Lease Contracts
The assessee, a company engaged in leasing and financing, entered into two types of transactions: sale and lease back, and direct lease transactions. The Assessing Officer treated these transactions as not genuine and disallowed the depreciation claims. The Commissioner of Income Tax (Appeals) and the Tribunal upheld this decision, leading to the present appeal.

Issue 2: Justification for Disallowing Depreciation Based on Traceability of the Supplier or Other Technical Reasons
The Tribunal disallowed the depreciation claims on the grounds that the suppliers were not traceable, and the transactions appeared to be financial rather than genuine lease transactions. The assessee failed to provide sufficient evidence to prove the genuineness of the transactions, including delivery and installation of the leased equipment.

Issue 3: Valuation of Assets Leased in Specific Cases
The valuation of assets in the cases of M/s. Sanghi Textiles Ltd., M/s. Enterprising Enterprises, and M/s. Patheja Forgings & Auto Parts Mfg. Ltd. was questioned. The authorities found significant discrepancies and lack of proper documentation to support the claimed valuations, leading to the rejection of the depreciation claims.

Analysis of Specific Cases:

1. Sanghi Textiles Limited (Sale and Lease Back Transaction)
The assets involved were old and there was no evidence of delivery to the assessee. The valuation report was deemed self-serving and the transaction was considered a financial arrangement rather than a genuine lease. The Tribunal upheld the disallowance of depreciation.

2. Mid East Integrated Steels Limited (Sale and Lease Back Transaction)
The assessee claimed depreciation on turbines acquired from Kirloskar Oil Engines Limited. However, the supplier denied issuing invoices to the assessee, and the transactions were deemed financial. The Tribunal confirmed the disallowance of depreciation.

3. Victory Glass and Industries Limited (Direct Lease Transaction)
The supplier could not be traced, and there was no evidence of delivery and installation of the leased equipment. The Tribunal upheld the disallowance of depreciation due to lack of substantial evidence.

4. H.K. Datarex Limited (Direct Lease Transaction)
The supplier was untraceable, and the assessee failed to prove the existence of the supplier or the assets. The Tribunal confirmed the disallowance of depreciation.

5. Sitapur Plywood Limited (Direct Lease Transaction)
The supplier was not engaged in manufacturing the leased items, and the factory was no longer in existence. The Tribunal upheld the disallowance of depreciation due to lack of evidence.

6. GSL India Limited (Direct Lease Transaction)
The suppliers' addresses were fake, and the transactions were deemed financial. The Tribunal confirmed the disallowance of depreciation.

Conclusion:
The Tribunal and lower authorities consistently found that the transactions were not genuine lease arrangements but financial transactions. The assessee failed to provide sufficient evidence to substantiate the claims of depreciation. The appeal was dismissed, and the Tribunal's order was confirmed.

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