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2017 (1) TMI 1725 - AT - Income TaxDisallowance of depreciation on assets leased to GEB and Prakash Industries - HELD THAT - CIT(A) while deciding this issue for the A.Y.1993-94 has been dealt by the Income Tax Appellate Tribunal, Ahmedabad Bench. CIT(Appeals) was not justified in rejecting the assessee s claim of depreciation and holding that the transaction in question were in the nature of financing transactions simply by observing that facts and circumstances of the case was similar to the facts and circumstances of the case of ICICI Bank Ltd. because prior to amalgamation / taking over the affairs of M/s.Anagram Finance Ltd. by ICICI Bank Ltd., M/s.Anagram Finance Ltd. was an independent Limited Company (during the previous year relevant to Assessment Year 1993-94) and was carrying on independent business of leasing and financing. Therefore, the nature of transaction carried on by M/s.Anagram Finance Ltd. should have been considered independently irrespective of the findings in the case of ICICI Bank Ltd. - Decided against revenue. Disallowance of the depreciation on leased assets with Usha India Ltd., Sayaji Hotels and Shaan Packaging - letters were issued to the supplier which were returned unserved therefore the supplier were not in existence - HELD THAT - The claim of the assessee was declined on the ground of that the letters were written to the supplier which were returned unserved and the supplier denied the supply or plant was not in existence. On appraisal of the above said evidence produced before us the finding of the AO as well CIT(A) does not seem reasonable. The evidence adduced by the assessee nowhere examined and discussed by the AO as well as CIT(A). Since the matter of controversy has not been decided by discussing the evidence adduced by the assessee, therefore finding of the CIT(A) is not liable to be sustainable in the eyes of law. We set aside the finding of the CIT(A) on this issue and direct the Assessing Officer to examine the issue afresh in the light of the evidence adduced by the assessee and decide the issue in accordance with law after giving an opportunity of being heard to the assessee. Accordingly, this issue is decided in favour of the assessee against the revenue. Disallowance of depreciation on the transaction with GEB - Claim declined by the Assessing Officer on the ground of that the supplier sold the goods to the GEB and the GEB has not transfer the ownership to Anagram and the machinery was not supplied because only parts were supplied - HELD THAT - AO as well as CIT(A) has declined the claim of the assessee on account of this facts that the supplier sold the goods to the GEB and the GEB did not transfer the ownership to Anagram and the machinery was not supplied because parts were supplied. The evidence adduced by the assessee nowhere examined and discussed by the AO as well CIT(A). Since the matter of controversy has not been decided by discussing the evidence adduced by the assessee, therefore in the said circumstances, we are of the view that the finding of the CIT(A) is not liable to be sustainable in the eyes of law. Therefore, we set aside the finding of the CIT(A) on these issues and direct the Assessing Officer to examine the issues afresh in the light of the evidence adduced by the assessee by giving an opportunity of being heard to the assessee. Disallowance of depreciation in sale and lease back transaction - HELD THAT - The present case is for the A.Y.1994-95 and the CIT(A) has declined the contention of the assessee on the ground of that the explanation 4A to the Section 43(1) of the Act was clarifactory in nature whereas the legal position is quite different which has been discussed above specifically in view of the law settled in Berlia Chemicals Traders (P) Ltd. Vs. Assistant Commissioner of Income Tax 1999 (10) TMI 740 - ITAT MUMBAI and also Hon ble Madras High Court in case titled as Om Sindhoori Capital Investments Ltd. Vs. Joint Commissioner of Income Tax 2004 (12) TMI 44 - MADRAS HIGH COURT Accordingly, we are of the view that the disallowance on depreciation on sale of lease back transaction is wrong against law - Decided against revenue.
Issues Involved:
1. Disallowance of depreciation on assets leased to GEB and Prakash Industries. 2. Disallowance of depreciation on various leased assets due to supplier non-existence, supplier denial, and asset non-existence. 3. Disallowance of depreciation on transactions with GEB. 4. Disallowance of depreciation in sale and lease back transactions. 5. Levy of interest under section 234B of the Income Tax Act, 1961. Issue-wise Detailed Analysis: Issue 1 & 2: Disallowance of Depreciation on Assets Leased to GEB and Prakash Industries The assessee challenged the disallowance of depreciation amounting to ?1,02,47,527 on assets leased to Gujarat Electricity Board (GEB) and Prakash Industries. The CIT(A) disallowed the depreciation following the decision for the assessment year 1993-94. The ITAT Ahmedabad Bench previously ruled that the CIT(A) was not justified in rejecting the claim of depreciation, directing the Assessing Officer to reassess the nature of transactions with GEB and Prakash Industries. Following this precedent, the ITAT Mumbai set aside the CIT(A)'s findings and remanded the issue back to the Assessing Officer for fresh consideration in line with the ITAT Ahmedabad's observations. Issue 3 to 5: Disallowance of Depreciation on Various Leased Assets The assessee contested the disallowance of depreciation on leased assets totaling ?86,67,685 due to claims that suppliers were non-existent, suppliers denied supplying assets, or assets were non-existent. The assessee provided extensive documentation to prove the existence and lease of assets with Usha India Ltd., Sayaji Hotels, Shaan Packaging, Kedia Castle Dellon Ind., Khatau Junker, GEB, and Western Paques. The ITAT Mumbai found that the Assessing Officer and CIT(A) failed to adequately examine and discuss the evidence provided by the assessee. Consequently, the ITAT set aside the CIT(A)'s findings and directed the Assessing Officer to re-examine the issue afresh, considering the evidence submitted by the assessee. Issue 6 & 7: Disallowance of Depreciation on Transactions with GEB The assessee disputed the disallowance of depreciation on transactions with GEB amounting to ?3,91,63,200. The disallowance was based on claims that the supplier sold goods directly to GEB, ownership was not transferred to the assessee, and only parts were supplied. The assessee presented various invoices and confirmations to support their claim. The ITAT Mumbai noted that the evidence provided by the assessee was not properly examined by the Assessing Officer or CIT(A). Therefore, the ITAT set aside the CIT(A)'s findings and instructed the Assessing Officer to reassess the issue, taking into account the evidence provided by the assessee. Issue 8 to 10: Disallowance of Depreciation in Sale and Lease Back Transactions The assessee challenged the disallowance of depreciation amounting to ?25,01,250 in sale and lease back transactions. The disallowance was based on the fact that the assets had already been fully depreciated by the seller, Jai Prakash Ind., and thus had no written down value (WDV). The ITAT Mumbai referred to the legal position established in Berlia Chemicals & Traders (P) Ltd. and Om Sindhoori Capital Investments Ltd., which held that Explanation 4A to section 43(1) of the Act, effective from 01.10.1996, was not retrospective. Therefore, the ITAT concluded that the disallowance for the assessment year 1994-95 was incorrect and allowed the depreciation claim. Issue 11: Levy of Interest under Section 234B The issue regarding the levy of interest under section 234B of the Income Tax Act was deemed consequential and dependent on the outcome of the reassessment of the primary issues. Therefore, it was not adjudicated separately. Conclusion: The appeal was partly allowed, with the ITAT setting aside the CIT(A)'s findings on several issues and directing the Assessing Officer to reassess the matters afresh, considering the evidence provided by the assessee. The ITAT also allowed the depreciation claim on sale and lease back transactions, following established legal precedents. The order was pronounced in open court on 25th January 2017.
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