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TMI Blog1999 (9) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... gard. Hence this ground of appeal is dismissed as not pressed for. 4. Let us take up the ground relating to disallowance of bad debts. Briefly stated, the facts of the case are that while processing the assessment of the assessee-company under section 143(3) of the Income-tax Act, 1961, the Assessing Officer noticed that the assessee had claimed a sum of Rs. 5,31,097 as bad debts. The Assessing Officer found that the assessee-company had leased certain assets to M/s. Narang Industries Ltd. of New Delhi. After certain initial payment of lease amount, they were not paying the lease amount to the assessee-company. The assessee's correspondence did not produce any result. Therefore, the assessee-company had filed a legal notice and a petition for winding up under sections 434, 433 and 439 of the Companies Act, 1956 in the Delhi High Court. On these facts available on records, the Assessing Officer addressed a letter to M/s. Narang Industries Ltd. for which the said company replied that though there was some delay in making the lease instalments, it could not be said that it was bad debt. The company had no intention of stopping the payment to the assessee. The Assessing Officer notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le. Section 36(1)(vii) was amended by the Direct Taxes Laws (Amendment) Act, 1987 w.e.f. 1-4-1989. Before amendment, i.e., upto 31-3-1989, the sub-section read as follows:- "subject to the provisions of sub-section (2), the amount of any debt, or part thereof, which is established to have become a bad debt in the previous year". whereas after the amendment, the sub-clause (vii) of sub-section (1) of section 36 reads as follows:- "subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year". A simple comparison of sub-clause (vii) as it existed before amendment and as it exists today would clearly show that the phrase "which is established to have become a bad debt in the previous year" is conspicuously absent in the post-amended sub-clause. This would clearly show that it is not for the assessee now, i.e., after the amendment of the sub-clause with effect from 1-4-1989. to establish that the debt had become bad in the previous year. On the other hand, if it has been written off as irrecoverable in the accounts of the assessee for the previous year, it wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n value, the assessee had claimed 100% value as depreciation. The total claim was Rs. 75,00,100. This is one of the deals known as sale and lease back arrangement for financial purposes. The Assessing Officer while framing the assessment under section 143(3) of the Income-tax Act, observed that this agreement to sell these meters to the assessee was ab initio void and there was no intention to sell the meters to the assessee. Thus, according to the Assessing Officer the assessee did not get the title over the meters involved. According to him, the essential condition of allowing depreciation was that the assessee shall own the property and shall utilise for its business. In this case no assets were acquired from anybody and no delivery of the same was done and the assessee has not in any way utilised the same for its business. It only helped the assessee to take these assets as a security at best. According to the Assessing Officer, the sale to the assessee by the Rajasthan State Electricity Board was only a fake one inasmuch as the normal ingredients of sale were not there, i.e., offer and acceptance of sale, inspection of the items, pricing of the items and passing of the sale va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion report and in his subsequent reply are ambiguous. This would only indicate that even the valuation of the impugned assets, have been made without basis. Such valuation could have never formed the basis of a genuine transaction of purchase or sale. (vi) A consideration of the above facts makes it amply clear that no real purchase or sales took place between the appellant and the Rajasthan State Electricity Board. The appellant actually advanced the sum of Rs. 75,00,100 to Rajasthan State Electricity Board and received the compensation in the form of lease rentals. The agreement between the Rajasthan State Electricity Board and the appellant was entered into only to give the financing transaction a colour of purchase and sale, by which the appellant would get additional benefit in the form of full depreciation. This is a colourable device for availing undue benefits under the Income-tax Act. It cannot be held that the appellant actually purchased the impugned assets. It cannot be equally held that the appellant actually owned the assets. Thus the appellant will not be entitled for depreciation on the assets. 11. Thus it can be seen that the first appellate authority also has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Installation Certificate. 6. No depreciation claim certificate from Rajasthan State Electricity Board. 7. Relevant Notification of the Government of Rajasthan in the Gazette in connection with the related sales tax issues, i.e., exempting the transaction from Sales-tax. 14. It was further submitted that the agreement with the Rajasthan State Electricity Board, which is a State Government concern, should not be considered as void, since the same would mean questioning the bona fide of the State Government by the Income-tax Department. It was further pleaded that the Assessing Officer was not justified in concluding that there was no utilisation, since the appellant used the assets in its leasing business. In this connection reliance has been placed in the decision of the Madras Bench of the Tribunal in the case of Shriram Investments Ltd. v. Asstt. CIT [1996] 59 ITD 570. It was also submitted that depreciation was allowable in respect of the transaction of purchase from and lease back to the same party in the light of the decision of the Tribunal in the case of Oriental Leasing Co. v. Dy. CIT [l996] 55 TTJ (Delhi) 294. 15. The learned counsel for the assessee also relied o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all compilation filed by the assessee's counsel and the decisions relied upon by him. In view of the insertion of Explanation 4A to section 43(1), which deals with the actual cost of the transferred assets in respect of leased assets, it is as clear as crystal that the concept of sale and lease back transactions are recognised ones and not unknown to the Income-tax Act. In such situations it is wrong to consider the agreement between the Rajasthan State Electricity Board and the appellant 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 learned first appellate authority it transpires that he confirmed the disallowance made by the Assessing Officer mainly because the transactions between the assessee and the Rajasthan State Electricity Board involved no physical delivery or possession and that the invoice-cum-delivery challan was only a formality. Also, the CIT (Appeals) was much worried about the fact that the appellant entered into the transaction without insisting on the exact specification of the items, though the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered as the owner of the leased assets and once the assessee is the owner of the assets, it is eligible for depreciation. In this case each of the meters was costing less than Rs. 5,000 and hence the assessee had claimed 100% depreciation on each of the meters as provided in the depreciation schedule to the Income-tax Rules. We do not find any illegality in this claim of the assessee because once the assessee is to be considered as the owner of the assets, the assessee-company is eligible for the allowances under the Income-tax Act, namely depreciation according to the depreciation schedule incorporated to the Income-tax Rules. Once the assessee had claimed depreciation so long as the same is according to the depreciation schedule under the Income-tax Rules, the same is to be allowed as we have already held that the assessee is the owner of the assets and is eligible for depreciation on the lines of the decision of the Apex Court. In the light of the above discussions, we are inclined to allow the claim of the assessee as regards depreciation in a sum of Rs. 75,00,100. 20. Let us now advert to the ground relating to levy of interest under sections 234B and 234C of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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