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TMI Blog2012 (5) TMI 287X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing are the substantial questions of law raised in these Tax Case Appeals: (i) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the re-opening of assessment by the assessing officer for the years 1995-96 1996-97 was bad in law? (ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to depreciation? (iii) Whether on the facts and in the circumstances of the case, the Tribunal was right in treating the hire purchase and the lease transactions as genuine as far as the assessee was concerned? (iv) Whether on the facts and in the circumstances of the case, the Tribunal was right in permitting depreciation as claimed when the value of the asset could only be the written down value in the books of the seller as per explanation 3 to Section 43(1)? Assessment year 1995-96 relates to the reopening of assessment under Section 147 of the Income Tax Act and the assessment for other two assessment years are under Sections 143(1)(a) and 143(3) of the Income Tax Act respectively. 3. The facts leading to the grant of depreciation and subsequent withdrawal are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Authority as to the genuineness of the transaction, which, ultimately, was rejected by the Officer. 5. Aggrieved by the assessment for the assessment year 1995-96, the assessee went on appeal before the Commissioner of Income Tax (Appeals). A perusal of the order of the Commissioner of Income Tax (Appeals) for the assessment year 1995-96 shows the finding in paragraph 1.3.4 that the said appellate authority perused the Assessing Officer's records, wherein, the note filed by the assessee as regards the claim on depreciation on the leased out property was given. The first appellate authority pointed out that in the course of the original assessment proceedings, details relating to the sale and lease back transactions were furnished and that there was nothing on record to indicate that the Assessing Officer had consciously applied his mind on the issue of allowability of depreciation and consciously took a decision to allow depreciation on the same. Thus the first appellate authority viewed that when there had been an appraisal of the facts by the Assessing Officer subsequent to assessment, it could not be considered as a change of opinion. Thus the first appellate authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeals relating to the assessment years 1996-97 as well as 1997-98. The Tribunal pointed out that the Revenue had not brought on record any material to come to a conclusion that the transaction was a sham one. The Tribunal pointed out to the valuation aspect of the boiler that there was one valuation of the boiler at Rs.2.53 crores and the deal was struck at Rs.2.50 crores. The Tribunal pointed out that the assessee had placed the shareholdings of the two concerns which included financial institutions like I.C.I.C.I., I.D.B.I., U.T.I., apart from others. The Tribunal pointed out that when the fact relating to the sale and the subsequent financial agreement, hire purchase agreement as well as leasing transaction had all been placed before the financial institutions for their clearance and when the assessee had obtained clearance from I.C.I.C.I. for the transaction, it was difficult to come to the conclusion that the transaction was only a sham transaction to benefit the assessee. Thus the Tribunal viewed that in the absence of any material, either direct or circumstantial, to show that the transactions were sham documents, it was difficult to accept the view of the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Circular No.549 dated October 31, 1989 {[1990] 182 ITR (St.) 1, 29), which reads as follows: "7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression `reason to believe' in section 147.--A number of representations were received against the omission of the words 'reason to believe' from section 147 and their substitution by the `opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, 'reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression 'has reason to believe' in place of the words 'for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same." Keeping this declaration of law in the background, when we look at the original assessment made and the documents filed by the assessee, it is clear that the document on the hire purchase of the machinery entered into on 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mode of delivery and possession, the fact that the assessee had not taken physical possession, per se, does not pronounce anything against the sale that took place between the assessee and M/s.Ponni Sugars and Chemicals Limited. Thus there are no material on record to show that the sale between the assessee and M/s.Ponni Sugars and Chemicals Limited was a sham transaction. In the above circumstances, the genuineness of the said transaction cannot be questioned at all. 10. The second aspect of the transaction is the hire purchase agreement between the assessee and Wipro Finance Limited. As already pointed out, the total consideration of the purchase of the material was Rs.250 lakhs, for which the assessee had paid a sum of Rs.50 lakhs and the balance of Rs.200 lakhs was financed by M/s.Wipro Finance Limited. As far as this transaction is concerned, a perusal of the same shows that the records were available before the Assessing Authority at the earliest of the transactions which related to the assessment year 1995-96 and there is nothing on record to show that the transaction had not gone through between the assessee and M/s.Wipro Finance Limited. The only ground on which the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y commercial considerations, even to invoke the theory of tax evasion, the Revenue must have sufficient material to draw an inference of what had been shown as an understanding on an agreement between the parties, is not, in fact, so. 11. In the recent decision of the Apex Court reported in [2012] 341 ITR 1 (SC) Vodafone International Holdings B.V. Vs. Union of India) , the Apex Court considered the decision reported in (1985) 3 SCC 230 (McDowell and Co. Ltd. Vs. CTO) extensively and held that there is no conflict between the decision in McDowell case and Union of India Vs. Azadi Bachao Andolan reported in (2004) 10 SCC 1 or McDowell case and Mathuram Agarwal Vs. State of Madhya Pradesh reported in (1999) 8 SCC 667 . The Apex Court pointed out that the task of the Revenue/Court is to ascertain the legal nature of the transaction and while doing so, it has to look at the entire transaction as a whole and not to adopt a dissecting approach. The Apex Court pointed out that "the Revenue cannot start with the question as to whether the impugned transaction is a tax deferment/saving device but that it should apply the "look at" test to ascertain its true legal nature (See Crave ..... 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