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TMI Blog2001 (8) TMI 279X X X X Extracts X X X X X X X X Extracts X X X X ..... nd confronting the appellant with all such material and without affording the appellant adequate opportunity to lead evidence to rebut the same. D. That the CIT(A) erred on facts and in law in not appreciating that the AO relied on ex parte statements recorded at the back of the assessee without affording the appellant an opportunity to cross-examine the deponents. II. That the CIT(A) erred on facts and in law in confirming the action of the AO in making disallowance of depreciation on assets given on lease amounting to Rs. 14,65,94,400 holding the lease of the assets to be sham transaction and colourable device to evade tax. A. That the CIT(A) erred on facts and in law in holding that transaction of lease of assets entered into by the appellant were short of actual genuine transactions. B. That, on the facts and circumstances of the case, the CIT(A) erred in completely ignoring the contractual rights and liabilities of the parties to the lease transactions statutorily recognised by law wherein the ownership of the assets remained with the appellant. C. That, on the facts and circumstances of the case, the CIT(A) erred in not dealing with the elaborate submissions made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and after calling for details from the assessee, assessment was framed by the AO under s. 143(3) at an income of Rs. 15,03,23,667, after making several additions/disallowances to the returned income. The assessee challenged those additions and disallowances by taking various grounds before learned CIT(A) who, however, upheld the action of the AO and dismissed the appeal vide his order dt. 28th Feb., 2001. 3. A perusal of the grounds indicates that the main dispute as projected in grounds I and II and its various sub-grounds is that the AO as well as learned CIT(A) were not justified in disallowing the claim of the assessee relating to depreciation on assets given on lease to Punjab State Electricity Board (for short PSEB) and Nagpur Alloys Castings Ltd. (NACAST) and various other concerns totalling to Rs. 14,65,94,400 holding that the lease of assets by the assessee to these concerns were sham and colourable devices to evade tax. The facts relating to this major dispute are that the assessee, a banking company, has during the relevant previous year provided assets on lease to PSEB, NACAST and various other concerns. In the case of PSEB and NACAST, the assets in question were pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) in the form of additional evidence. Learned CIT(A) furnished copies of the evidence furnished by the assessee to the AO during the course of appellate proceedings and called for his comments relating to leases entered into between the assessee and PSEB and NACAST. With regard to other leases entered into between the assessee and other lessees, the assessee pleaded before learned CIT(A) that the enquiry conducted by the AO was at the back of the assessee and the assessee was not allowed any opportunity to cross-examine the persons on whose statements the AO was relying upon to hold that the suppliers of equipment to those lessees, either were non-existent or they have denied having supplied any equipment to the lessees in relation to which the assessee has claimed depreciation. Learned CIT(A), however, recorded the submissions made by the assessee before him during the course of assessment proceedings but without contradicting the reasoning and submissions made on behalf of the assessee, he agreed with the reasoning and finding of the AO and dismissed the appeal filed by the assessee. 5. Before us, learned Authorised Representative pleaded that as far as the leases between the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial transaction; (ii) The assessee had at no point of time enjoyed any right of ownership over these assets and as such it was not entitled to claim depreciation; (iii) The agreement with PSEB have been intentional drafted in such a way to avoid creation of any charge over the assets and the assessee had no right to take possession of the assets; (iv) The sub-systems identified by PSEB for the purposes of sale and lease back were part and parcel of the main equipment, i.e., boiler itself, which had been purchased as a composite equipment; (v) The prices at which the equipments have allegedly been sold has no nexus with cost or W.D.V. and sale price was ostensibly decided on the basis of finance required by PSEB or/and funds which the assessee agreed to invest or/and the amount by which the assessee wanted to reduce its taxable profit by claiming depreciation on assets; and (vi) The cost as well as W.D.V. of the equipment sold and leased back to PSEB were not separately recorded in the books of PSEB. It was pleaded that the action of the AO as confirmed by learned CIT(A) in denying the claim of depreciation of Rs. 7,43,50,000 on assets leased out to PSEB is based on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng and the assessee has earned lease rental from PSEB in respect of assets given on lease which amount has been offered for tax and has been so taxed and as such the assessee cannot be denied the claim of depreciation in respect of those assets. Reliance was placed on the decision in the cases of CIT vs. Shaan Finance (P) Ltd. (1998) 146 CTR (SC) 110 : (1998) 231 ITR 308 (SC), United Technologies Ltd. vs. Dy. CIT (2000) 69 TTJ (Ahd) 25 : (2000) 73 ITD 150 (Ahd), New Deal Finance & Investment Ltd. vs. Dy. CIT (2000) 69 TTJ (Chennai) 410 : (2000) 74 ITD 469 (Chennai) and Mulraj Dwarkadas Gokuldas vs. Dy. CIT (1994) 48 TTJ (Bom) 531. 6. As regards lease of assets by the assessee to NACAST, the assessee has given on lease the following assets: Rs. "Steam generator supplied by Thermax Babcock & Wilcox Ltd., Bhopal 4,25,50,000 Dust Collector, self-fabricated by NACAST 2,39,66,000" It was submitted that the AO had conducted enquiry through Dy. DIT (Inv.), Raipur, which is alleged to have revealed the following: (i) the lease did not have invoice in support of receipt of steam generator as indicated in the invoice of Thermax Babcock and Wilcox Ltd., Bhopal and consignor's name m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the assessee and the assessee was not given an opportunity to cross-examine those persons who have stated before the officer who conducted enquiry on behalf of the AO that they have not supplied any equipment to various lessees in relation to which the assessee has claimed depreciation. It was submitted that as far as the assessee is concerned, it has asked the lessees to identify the suppliers of the equipment which they wanted to take on lease. Since the lessees have identified the suppliers as well as the machinery which they wanted to take on lease and the assessee has in fact paid the amount to the supplier as identified by lessee by account payee cheques and existence of leased assets in the premises of the lessees was verified by the officers of the bank, the assessee should be allowed claim of depreciation. It was submitted that the AO has not made any enquiry in relation to the bank account of the supplier of the machinery to find out as to what happened to the cheques issued by the assessee-bank to the suppliers as pointed out by the lessees and claim of depreciation has been denied to the assessee relying on the statements of some of the representatives of the supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and the entire paper work done in the form of leasing out of assets, issuing of vouchers-cum-delivery challan, etc. was done to give appearance of genuineness of transactions for the purpose of claiming depreciation. Accordingly, it was pleaded that the case of the assessee should be decided in the light of the observations made in the case of McDowell & Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC), as those transactions were nothing but colourable device to evade tax. Reliance was placed on the decisions in the cases of Mysore Dasaprakash vs. CIT (1989) 75 CTR (Mad) 120 : (1989) 177 ITR 38 (Mad), CIT vs. Podar Cement (P) Ltd. (1997) 141 CTR (SC) 67 : (1997) 226 ITR 625 (SC), Mysore Minerals Ltd. vs. CIT (1999) 156 CTR (SC) 1 : (1999) 239 ITR 775 (SC) and Gowri Shankar Finance Ltd. vs. CIT (2001) 166 CTR (Kar) 137 : (2001) 248 ITR 713 (Kar). 9. We have considered the rival submissions and have also gone through the orders passed by the AO as well as learned CIT(A). As far as lease transactions entered into by the assessee with PSEB and NACAST are concerned, here the machinery or equipment in relation to which the assessee has claimed depreciation was purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h. Dalbir Singh dt. 10-8-2000 reg. NACAST, enclosing the followings 210-215 Copy of provisional registration order under the Indian Boilers Act 216 Copy of drawings approved by the Maharashtra Government 217-219 Copy of challans/GRs 220-222 Copy of the contract for transportation of boilers 223-239 Statement of a/cs of supplies made at site of NACAST 240-255 Copy of invoices raised by Thermax and delivery challans, etc. 256-309 Copy of GA drawings of the various boilers 310 Copy of letter dt. 9-8-2000 from authorised signatory of Thermax confirming supply of boilers 311 Copy of photographs of boiler 312-314 Copy of invoices raised by Beekay Engg. for fabrication of dust collector 315-317 Technical note on dust collector 318 Photographs of dust collector 319 All these evidences to prove purchase of equipment by the assessee from PSEB and NACAST and its subsequent lease back in terms of lease deeds was furnished by the assessee before learned CIT(A) who forwarded the same to the AO. However, it appears that the AO for reasons best known to him has not offered any specific comments on these documents/evidences furnished by the assessee but has simply reported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the position is slightly different. In the case of these three lessees, the Bank of Punjab Ltd., the appellant-assessee before us, has asked these lessees to identify the equipment required by them and identify the suppliers of that equipment. The assessee has made payments to the suppliers of equipment at the instance of lessees by account payee cheques. However, on enquiry the AO found that some of the suppliers did not exist at the addresses given, while some of them though existing at the place mentioned in the invoice were not capable of manufacturing or supplying the type of equipment needed by the lessees and in some cases like that of M/s Prakash Engg. Works and M/s Ashish Engg. Works whose proprietor and partner Sh. Mohinder Lal Ghia and Sh. R.K. Aggarwal have denied having supplied machinery to the lessees. However, the AO has not made any further enquiry as to what happened to the money paid by the assessee by account payee cheques to these suppliers and whether in fact money came back to the assessee after being withdrawn from the accounts of the suppliers or it was diverted to the lessees to whom the disputed machinery was leased by the assessee having purchased by i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle manual 35,600.00 Total 10,85,052.38" The AO following his order for earlier assessment year disallowed 50 per cent of said expenditure holding the same to be of capital nature and learned CIT(A) confirmed the same. Learned Authorised Representative pleaded that the expenditure on purchase of software did not result in any enduring benefit or creation of assets in capital field and as such was rightly claimed as a revenue expenditure by the assessee and the Departmental authorities were not justified in treating 50 per cent of that expenditure as an expenditure of capital nature. Reliance was placed on the decisions in the cases of Empire Jute Co. Ltd. vs. CIT (1980) 17 CTR (SC) 113 : (1980) 124 ITR 1 (SC), CIT vs. Associated Cement Companies Ltd. (1988) 70 CTR (SC) 28 : (1988) 172 ITR 257 (SC) and Alembic Chemical Works Co. Ltd. vs. CIT (1989) 77 CTR (SC) 1 : (1989) 177 ITR 377 (SC). Learned Departmental Representative supported the order of AO as confirmed by the CIT(A). 12.1 We have considered the rival submissions. Purchase of software is not an expenditure in capital field, as the assessee is required to change the software within a very short span of time may be a ye ..... 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