2011 (3) TMI 1432 - HC - Income Tax

Whether Tribunal is right in law and on facts in allowing, under Explanation 4-A below Section 43(1) of the Income Tax Act, the claim by the assessee amounting to Rs.1,59,13,750/- and the sale and lease-back transaction in the facts and circumstances of the case is liable to be held as dubious - Assessing Officer disallowed the claim of depreciation @ 100% claimed by the assessee on the ground that the transactions between Rajasthan State Electricity Board, ITC, Bhadrachalam Finance and Investment Limited and the assessee were not genuine transactions - Held that - transactions were genuine transactions and the Tribunal has not committed any error in allowing claim of depreciation, decision in favour of the assessee and against the Revenue, Tribunal was right in law and on facts in allowing the claim of the assessee

Summary

Issues Involved:
Interpretation of Explanation 4-A under Section 43(1) of the Income Tax Act regarding a claim by the assessee amounting to Rs.1,59,13,750 and the legitimacy of a sale and lease-back transaction.

Detailed Analysis:
The High Court of Gujarat heard an appeal under section 260A of the Income Tax Act challenging the order of the Income Tax Appellate Tribunal for Assessment Year 1994-95. The substantial question of law formulated was whether the Tribunal was correct in allowing the claim by the assessee and if the sale and lease-back transaction should be considered dubious under Explanation 4-A below Section 43(1) of the Act.

The respondent-assessee acquired two machines on hire purchase basis from Gujarat Lease Financing Ltd (GLFL) during the accounting year. The first machine was sold by Kayam Udyog Limited to Lloyd Steel Industries Ltd., then to GLFL, and finally leased back to the respondent-assessee. The second machine was purchased by GLFL directly from Kayam Udyog Limited and then leased to the respondent-assessee, who further leased it to Lloyd Steel Industries Ltd.

The Assessing Officer disallowed depreciation claim on the machines, considering the transactions as tax planning through a colorable device. The Commissioner (Appeals) upheld this view, but the Tribunal partially allowed the appeal, granting depreciation on the leased machines. The Tribunal also upheld the levy of interest under sections 234A, 234B, and 234C, with the assessee entitled to consequential relief for interest computation.

The High Court referred to previous judgments involving similar issues and held that the transactions were genuine, dismissing the Revenue's appeal. Citing precedents where similar transactions were found genuine, the Court concluded that the Tribunal was correct in allowing the depreciation claim and upholding the legitimacy of the sale and lease-back transaction.

In light of the court's previous decisions, the present appeal was resolved in favor of the assessee, affirming the Tribunal's decision to allow the depreciation claim and validating the sale and lease-back transaction. The Court found no legal infirmity in the Tribunal's order, dismissing the appeal by the Revenue.

Thus, the High Court upheld the Tribunal's decision, emphasizing the genuineness of the transactions and the entitlement of the assessee to claim depreciation on the leased machines, ultimately ruling in favor of the assessee and against the Revenue.