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TMI Blog2000 (10) TMI 180X X X X Extracts X X X X X X X X Extracts X X X X ..... ering the directions and observations of the CIT (Admn.). Before restoring the matter the CIT issued a show-cause notice to the assessee and after considering the submissions and various case laws relied upon by the assessee, the CIT was satisfied that the order of the AO was erroneous and prejudicial to the interest of Revenue. In his view, as the depreciation was claimed at hundred per cent, therefore, as per Expln. 3 to s. 43(1), the written down value was nil in the hands of the seller at the time of their sale to the assessee. Therefore, there was a device adopted by the assessee with the collusion of the seller. Accordingly, the assets were purchased and they were leased back to the same parties. This collusive action was for the purpose of avoidance of tax. Accordingly, the order of the AO was set aside. Now the assessee is in appeal here before us. 3. We have heard the rival submissions at length. We have also perused the material on which our attentions were drawn and have also considered the case laws relied upon by both the parties. After considering the rival submissions and perusing the material on record, we noted that there is no dispute in regard to facts of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is submitted that in view of the fact that the seller company would have suffered capital gain on sale of the assets on which depreciation has already been claimed by it, there is no question of reducing the taxable income resulting in a loss to the Revenue. It may be submitted that even claim of depreciation @ 100 per cent by the assessee does not result in reduction of its tax liability, as over the duration of the lease, the assessee would offer Rs. 174.69 lakhs as income by way of lease rental, as against the claim of depreciation at Rs. 150 lakhs only. In view of this, it is requested that no adverse inference be drawn in the matter." 4. From the correspondence made by the assessee with the AO it clearly emerges that assessee was required to file details in regard to the claim of depreciation and the assessee has complied with the information as required. Of course there is no whisper in regard to another purchase and leasing back, which was made from APSEB. This may not be, for the reason that the details of purchases were filed and the items were purchased from a Government agency. Therefore, the AO did not enquire further because the purchases were made from State Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... every type of mistake or error committed by the AO, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous." It is further observed that "in the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase "prejudicial to the interests of the Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect-tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the ITO the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of the AO, cannot be treated as prejudicial to the interests of the Revenue, for example, when an ITO adop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenditure incurred by the assessee. The assessee had given a detailed explanation in that regard by a letter in writing. All these were part of the record of the case. Evidently, the claim was allowed by the ITO on being satisfied with the explanation of the assessee. This decision of the ITO could not be held to be "erroneous" simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the CIT himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the ITO to re-examine the matter. That was not permissible. The Tribunal was justified in setting aside the order passed by the CIT under s. 263." 11. The facts here before us are exactly similar with the facts in the case of Gabriel India Ltd. Here in the present case the assessee was required to file details. The assessee filed the same and they were examined. However, there was no elaborate discussion by the AO in his order. The CIT (Admn.) invoked the provisions of s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the assessee as the one entered into only to give the financing transaction a colour of purchase and sale by which the assessee would get additional benefit in the form of full depreciation. From the perusal of the orders of the first appellate authority it transpired that he confirmed the disallowance made by the AO mainly because the transactions between the assessee and the State Electricity Board involved no physical delivery or possession and that the invoice-cum-delivery challan was only a formality. Also, the CIT(A) was much worried about the fact that the assessee entered into the transaction without insisting on the exact specification of the items, though the assessee relied on the valuation report of an independent valuer. He also had observed that the assessee could not be held to be the owner of the assets. More surprising was that the lower authorities considered this transaction as a colourable device for availing under benefits under the Act, although the transactions were with a State Government undertaking, particularly in response to a public advertisement which appeared in the leading newspapers. One is now living in Internet World and many transactions i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed depreciation, so long as the same was according to the depreciation Schedule under the Rules, the same was to be allowed as the assessee was the owner of the assets and was eligible for depreciation on the basis of the decision of the apex Court. In the light of the above discussion the claim of the assessee was to be allowed." 13. Similar issue was decided by Ahmedabad Bench of the Tribunal in the case of Unimed Technologies Ltd. vs. Dy. CIT (2000) 69 TTJ (Ahd) 25 : (2000) 73 ITD 150 (Ahd). In this case also the Department was of the view that the assessee entered into an agreement with Rajasthan State Electricity Board (RSEB) with a collusive motive to reduce the taxability. The issue was discussed in great detail and then it was held that the assessee has not entered into a sham transaction and the agreement was valid. It was observed by the Tribunal in this case that the RSEB, which is a Government of Rajasthan Corporation and to accept the Government of Rajasthan would be a party to sham transaction was untenable. If anything is established that the sale and lease back transaction was a genuine transaction as it was entered into by public offer in various newspapers ..... X X X X Extracts X X X X X X X X Extracts X X X X
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