2005 (2) TMI 483 - AT - Income Tax

Issues Involved:
1. Sale and lease back transactions
2. Straight lease transactions
3. Mortgage transactions

Issue-wise Detailed Analysis:

I. Sale and Lease Back Transactions:

1. M/s Khoday India Ltd.:
- The assessee claimed depreciation on oak wood barrels leased back to M/s Khoday India Ltd. The AO disallowed the depreciation, determining the value of each barrel at Rs. 279 instead of the claimed Rs. 4,800, invoking Explanation 3 to Section 43(1) of the IT Act. The CIT(A) confirmed the disallowance, and the Tribunal upheld this decision, noting the lack of credible valuation evidence from the assessee.

2. M/s Mohan Breweries & Distilleries Ltd.:
- The assessee claimed depreciation on assets acquired from M/s Mohan Breweries & Distilleries Ltd. The AO, finding discrepancies in the valuation and the absence of original invoices, relied on the Departmental valuer's lower valuation. The CIT(A) confirmed the disallowance, and the Tribunal upheld this decision, emphasizing the inflated valuation by the assessee and the lack of supporting evidence.

II. Straight Lease Transactions:

1. M/s Kedia Distilleries Ltd.:
- The AO disallowed depreciation on machinery leased to M/s Kedia Distilleries Ltd., citing statements from company officials indicating sham transactions. The CIT(A) confirmed the disallowance, and the Tribunal upheld this decision, noting the absence of credible evidence from the assessee and the denial of cross-examination opportunity by the assessee.

2. M/s Mahalakshmi Sugar Mills Company Ltd.:
- The AO disallowed depreciation on boilers leased to M/s Mahalakshmi Sugar Mills Company Ltd., citing the involvement of a subsidiary and the non-existence of the supplier. The CIT(A) confirmed the disallowance, and the Tribunal upheld this decision, highlighting the financial nature of the transaction and the lack of evidence supporting the lease.

3. M/s Prakash Industries, Carews Pharmaceuticals Ltd., and Sitapur Plywoods Industries:
- The AO disallowed depreciation on assets leased to these companies, citing non-existence of suppliers and lack of supporting evidence. The CIT(A) confirmed the disallowance, and the Tribunal upheld this decision, emphasizing the dubious nature of the transactions and the absence of credible evidence.

4. M/s Patheja Forgings & Auto Parts Ltd.:
- The AO disallowed depreciation on assets leased to M/s Patheja Forgings & Auto Parts Ltd., citing non-existence of suppliers and the financial nature of the transaction. The CIT(A) confirmed the disallowance, and the Tribunal upheld this decision, noting the lack of evidence supporting the lease and the financial nature of the transaction.

III. Mortgage Transactions:

1. M/s Marvel Sales & Services Ltd.:
- The AO disallowed depreciation on assets leased to M/s Marvel Sales & Services Ltd., treating the transaction as a mortgage. The CIT(A) confirmed the disallowance, and the Tribunal upheld this decision, noting the financial nature of the transaction and the lack of evidence supporting the lease.

Conclusion:
The Tribunal upheld the disallowance of depreciation in most cases, emphasizing the lack of credible evidence, the financial nature of the transactions, and the dubious nature of the suppliers. The issue regarding the straight lease transaction with M/s Carews Pharmaceuticals was remitted to the AO for verification. The assessee's appeal was partly allowed for statistical purposes.

← Previous Next →