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2012 (9) TMI 221 - AT - Income TaxDisallowance of depreciation on the LPG Cylinders - loaning of the cylinders against security deposit - ITAT has directed the AO to make necessary investigation to ascertain whether the assessee has actually purchased the cylinders - Held that - ITAT had remanded the matter only for the limited purpose of 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. Referring to the terms and conditions mentioned in the subscription vouchers it can be concluded that the ownership of the cylinders always remain with the assessee even after loaning of the cylinders against security deposit & 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 subscriber can take refund of the security deposit on surrendering cylinder along with the subscription voucher - Had it been the sale of cylinders as alleged by the Revenue authorities then the assessee will be under no obligation to refund the security deposit and there will be no restriction on the consumer also either to sell or mortgage the cylinder - direct the Assessing Officer to allow depreciation on the cylinders - in favour of assessee.
Issues Involved
1. Erroneous order by CIT(A). 2. Disallowance of depreciation on LPG cylinders. 3. Ownership and purchase of LPG cylinders. 4. Validity of transactions involving loaning of cylinders. Detailed Analysis 1. Erroneous Order by CIT(A) The assessee contended that the order passed by the CIT(A) was erroneous both in law and on the facts of the case. The CIT(A) had concluded that the assessee had not purchased the LPG cylinders, which was a critical point of contention. 2. Disallowance of Depreciation on LPG Cylinders The central issue was whether the assessee was entitled to claim 100% depreciation on LPG cylinders used for filling LPG. The Assessing Officer (AO) initially disallowed the depreciation, concluding that the ownership of the cylinders had been transferred from the assessee, rendering the transaction a sham designed for tax avoidance. This disallowance was upheld by the CIT(A), who found that the assessee had not genuinely purchased the cylinders. 3. Ownership and Purchase of LPG Cylinders The assessee argued that the cylinders were indeed purchased and used in the business, thus qualifying for depreciation. The ITAT had previously directed a detailed enquiry to ascertain the purchase and loaning of cylinders. The AO, upon re-examination, accepted that the assessee had purchased the cylinders but still disallowed the depreciation, arguing that the cylinders were effectively sold, not loaned. 4. Validity of Transactions Involving Loaning of Cylinders The CIT(A) and AO questioned the genuineness of the loaning transactions, suggesting that the cylinders were sold rather than loaned. The assessee provided evidence, including purchase invoices, delivery challans, gate passes, and subscription vouchers, to support the claim of loaning the cylinders against security deposits. The CIT(A) doubted these transactions, citing incomplete information on the invoices and the lack of specific terms regarding the loan duration. ITAT's Findings 1. Erroneous Order by CIT(A): The ITAT found that the CIT(A)'s conclusion was based on suspicion and irrelevant considerations. The CIT(A) failed to provide concrete evidence to refute the purchase of cylinders. 2. Disallowance of Depreciation: The ITAT noted that once the purchase of cylinders was established, the assessee was entitled to claim depreciation. The ITAT Special Bench decision in the case of Detective Devices Pvt. Ltd. supported this entitlement. 3. Ownership and Purchase: The ITAT determined that the assessee had sufficiently proved the purchase of cylinders through various documents. The AO's acceptance of the purchase fact further supported the assessee's claim. The CIT(A)'s doubts were not substantiated by evidence. 4. Validity of Loaning Transactions: The ITAT found that the subscription vouchers clearly indicated that the ownership of the cylinders remained with the assessee, and the cylinders were loaned against refundable security deposits. This arrangement did not constitute a sale, as the terms restricted the consumers' rights over the cylinders and required the return of the security deposit upon surrender of the cylinders. Conclusion The ITAT concluded that the assessee had successfully demonstrated the purchase and loaning of cylinders, entitling them to claim depreciation. The appeals were allowed, and the AO was directed to grant the depreciation as claimed by the assessee. Order Pronouncement The order was pronounced in the open court on 22nd June 2012, with all appeals of the assessee being allowed.
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