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TMI Blog2017 (12) TMI 925X X X X Extracts X X X X X X X X Extracts X X X X ..... st assessee Taxation of lease rentals - exclusion of lease rentals of the Gallus Machine leased to Primark Levels (P). Ltd - Held that:- Once, we have given finding that no depreciation is allowed on Gallus Machine leased to Primark Levels (P). Ltd. holding the same as Sham transaction, the consequence of the same will be that the lease rentals included by the assessee as income has to be excluded. Accordingly, we direct the AO to exclude the lease rental income of ₹ 12 lacks earned by the assessee from lease of Gallus Machine to Primark Levels (P). Ltd. The AO will examine the claim of assessee after verification of facts. This issue of assessee’s appeal is allowed. - ITA No. 5777/Mum/2015 - - - Dated:- 13-12-2017 - SRI MAHAVIR SINGH, JM AND SRI N.K. PRADHAN, AM For The Assessee : Mayur R. Makadia, AR For The Revenue : V. Vidhyadhar, DR ORDER PER MAHAVIR SINGH, JM: This appeal by the Assessee is arising out of the order of Commissioner of Income Tax (Appeals)-4, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-4/IT-10/ACIT-2(1)/2014-15 dated 28-09-2015. The Assessment was framed by the Asst. Commissioner of Income Tax, Circle-2(1), Mumbai [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 684/- to the said machine and claimed depreciation of ₹ 22,400/- (at rate of 35%) and ₹ 3,56,945 (at rate of 17.5%). Respectively, in respect of these subsequent additions which include additional depreciation claimed on these additions as well. During the assessment proceeding, information u/s. 133(6) of the Act was obtained from Primark Labels Pvt. Ltd. that the assessee purchased the Gallus Machine from Primark Labels Pvt. Ltd. for ₹ 2,22,18,801/- and it was put to use on 25.01.2010. Thereafter, for 2 years depreciation was claimed, hence W.D.V of this machine was of ₹ 1,55,50,934/- whereas assessee has shown to have purchased this machine for ₹ 2,70,00,000/-. Since machine was subjected to depreciation and same was claimed by the seller, the cost of machine as per Explanation 4A to Sec.43, the W.D.V. should be of ₹ 1,55,80,934/- whereas, according to the AO, assessee has claimed higher depreciation of ₹ 98,29,345/-, hence assessee was issued a show-cause notice through order sheet dated 07.10.2014. In response to the show cause, the A.R. of the assessee given reply dated 16.10.2014 which has been reproduced by the A.O. in Para 53.2 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade of the same machine and it has been given to the same selling party, i.e. sister concern. The Ld. A.O. has very rightly unearthed the fact that appellant company had not started any business of Label Printing . The assessee has admitted the fact by its letter dtd.29.09.2014. When no business of label printing was started on or after 13.04.211(A.0. has mentioned date as 18.03.2011), there was no propriety to claim that MOU was prepared on same day for giving the same machine to the selling party, being Associate Concern namely, M/s. Primark Labels Pvt. Ltd. Thus, the colorable device is very much visible from the facts on record. Obviously, the finding of the A.O. that there is a sham transaction is found to be correct. Similarly, there was no such label printing work started on 13.04.2011, then there was no reason to prepare MOU on 18.03.2011 and purchase machine at enhanced price. Obviously, by doing that assessee has claimed higher depreciation including additional depreciation and hereby has reduced the taxable income in this year. Therefore, the finding of the A.O. that entire arrangement was made only with the view to avoid tax, is approved. The appellant company is a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Primark Labels Pvt. Ltd. has unabsorbed depreciation of Rs,51,04,348/- and business loss of ₹ 45,04,854/- in A.Y. 2012-13. It has brought forward losses from A.Y. 2008-09 onwards. In case, any tax is paid under MAT, the same will be allowable for carry forward and set-off. On the other hand, the assessee company has shown profits consistently under normal provisions. To mutually benefit, this sale and lease back arrangement was made and due to that Gallus Machine was shown to have purchased at higher price than the original cost or W.D.V. 7. This finding of fact is recorded by the CIT(A) as well as the AO Thus, we are of the view that the affair was designed for tax evasion and also providing interest- free fund to the sister concern. The assessee has claimed additional depreciation on the said machine even though it was well known that sister concern had already claimed the same. Thus, A.O. has regarded such arrangement as sham transaction and finally has disallowed depreciation of ₹ 98,29,345/-. We find that now before us, the learned counsel for the assessee could not controvert the above findings of CIT(A) and that also of the AO. Once the assessee has designed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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