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TMI Blog2012 (8) TMI 282X X X X Extracts X X X X X X X X Extracts X X X X ..... f 100% depreciation - as observations suggest that transaction may not be a genuine lease transaction but only a financial transaction order of CIT(A)for allowing the claim of depreciation is set aside and the issue is restored back for passing a fresh order after necessary examination - in favour of revenue. - IT Appeal NO. 5189 (MUM.) OF 2006 - - - Dated:- 3-8-2012 - D. MANMOHAN, RAJENDRA SINGH, JJ. ORDER Rajendra Singh, Accountant Member This appeal by the revenue is directed against the order dated 27.7.2006 of CIT(A) for the assessment year 1993-94. The only dispute raised in this appeal is regarding allowability of depreciation in respect of plant and machinery being leased out by the assessee. 2. The facts in brief are that the assessee had purchased 17 Iron Rolls used in Steel Industries from M/s. Indore Steel Iron Mills Ltd. (ISIM) for a sum of Rs. 34,97,500/- on 25.3.1993. These rolls had been purchased by ISIM for a sum of Rs. 36,88,540/- in 1991. The assessee had made payment of Rs. 20.00 lacs through DD on 26.3.1993 and balance amount of Rs. 14,97,500/- had been paid through DD on 31.5.1993. The assessee vide lease agreement dated 27.3.1993 had le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt of payment from ISIM, certificate from ISIM regarding cost of purchase of iron roll, details of purchase of iron roll by ISIM and certificate from Shri Navin Goyal a chartered engineer regarding valuation of iron rolls. The assessee submitted before AO that the transaction was a genuine transaction and, therefore, the claim of depreciation should be allowed. The AO however did not accept the contentions raised. It was observed by him that after purchase by the assessee, physical possession of iron rolls were not handed over by ISIM to the assessee and even after expiry of lease agreement the iron rolls were still lying with ISIM and had not been taken over by the assessee till date. The AO also observed that ISIM had claimed 100% depreciation on the iron rolls and thereafter assessee also claimed depreciation on the same assets. The AO further observed that though the assessee had produced copy of certificate from Shri Navin Goyal a chartered engineer but failed to produce supporting documents on the basis of which Shri Goyal had quantified the values of these rolls at Rs. 35,00,000/-. It was also not clear from the certificate as to whether the rolls inspected by Shri Nav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rolls. It was pointed out that ISIM had already claimed depreciation on the rolls on which assessee was claiming depreciation through paper transaction, there being no movement of rolls. The Ld. Departmental Representative highlighted the various factual position discussed in the order of AO. It was also submitted that the case of the assessee was similar to the case of M/s. IndusInd Bank Limited v. ACIT in ITA 6566/M/02 for assessment year 1998-99 dated 14.3.2012 in which similar transactions had been held as finance transactions by the Special Bench of the Tribunal. It was accordingly urged that the order should be set aside and disallowance made by AO should be upheld. 5.1 The ld. AR for the assessee on the other hand strongly supported the order of CIT(A) and submitted that transactions were supported by bills and confirmations as well as payment made by draft. The lease of the rolls was supported by lease agreement. It was pointed out that purchase and lease back was a normal business transaction and it was not necessary to take over assets by the assessee physically when it was being leased simultaneously. The ld. AR referred to the decision of the Special Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal had restored the issue to the file of the AO for fresh order after examining as to what happened to the assets on expiry of the lease period and after considering the fact that in the subsequent years, the lease rent from the assets had been taxed in case of the assessee and after taking into account the decision of the Special Bench of the Tribunal in case of Mid East Portfolio ( supra ). 6.1 In the fresh assessment proceedings, the assessee produced bills of purchase from ISIM, the confirmation of receipt of payment, copy of lease agreement and certificate of Shri Navin Goyal, a Chartered Engineer regarding valuation of iron rolls. The AO however did not accept the claim on the ground that the assessee never received the rolls after purchase and that the rolls remained with the seller even after expiry of the lease period. The AO has also observed that ISIM had claimed 100% depreciation on these rolls on which the assessee was again claiming depreciation when the rolls remained with ISIM. Further, certificate from Navin Goyal had not given any basis for the purchase value shown by the assessee . The AO, thus, treated the transaction as sham with a motive to reduce tax l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee with respect to the asset after expiry of the lease period because in case of genuine purchase, assessee is expected to take back the asset and use it either for own purpose or lease it to some other party. In the present case, the AO has given a finding that the asset remained with ISIM, the original owner, even after expiry of lease period. CIT(A) has not given any finding on this aspect. Further, insofar as the assessee is concerned it had only paid a sum of Rs. 34,97,500/- to ISIM and has received total sum of Rs. 45,30,000/- over a period of three years. Therefore, in case the rolls have not been received by the assessee after the lease period, it would be a strong case of advancing of money which has been received back with principal and some interest over a period of three years. As regards the argument of the assessee that the AO himself allowed balance 50% depreciation in assessment year 1994-95, we find that the return in assessment year 1994-95 had only been processed under section 143(1) in which AO had no power to make any variation in the income of the assessee. Therefore, there is no conscious decision of the AO to allow depreciation in assessment year 1994-95. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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