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TMI Blog2014 (8) TMI 1217X X X X Extracts X X X X X X X X Extracts X X X X ..... als as against claim of depreciation of 150 lakhs. It is therefore clear that the Assessing Officer, when he raised the said queries had in mind Explanation 3 to Section 43(1) of the Act and whether or not, the same should be applied in the facts of the present case. Tribunal, in the impugned order, has rightly observed that in view of the correspondence and reply given by the assessee, the Assessing Officer had required the assessee to file details with regard to the claim of the depreciation and justify the same. The assessee had supplied with said information and justified the claim for said depreciation. Apparently, the Assessing Officer was fully satisfied with the said explanation offered by the assessee including why Explanation 3 to Section 43(1) of the Act should not be invoked. In these circumstances, we do not think, the finding of the Tribunal by relying up the judgment of the Supreme Court in Malabar Industrial Co. Ltd [ 2000 (2) TMI 10 - SUPREME COURT ] can be faulted. The present case is not one of no enquiry, but at best the revenue can plead and claim that it was a case of insufficient or inadequate enquiry as alleged. This aspect was examined by the Delhi High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent case, there is ample evidence to show that the assets allegedly purchased were used by the alleged seller for the purposes of business or profession. There are also substantial grounds for concluding that the main purpose of the transfer of the assets was the reduction of a liability of income tax by claiming depreciation with reference to an enhanced cost, since the WDV in the hands of the seller at the time of the sale was nil and the entire arrangement was a device whereby both the seller and the purchaser would benefit. Moreover, the nature of the buy and lease back and arrangement i.e., whether in the nature of lease or financing was also not examined. Even if we exclude the benefit to the seller from consideration, the benefit to the purchaser in the form of claim of 100% depreciation on assets having nil WDV in the hands of the seller and the subsequent leasing out of the same assets to the seller as well as the benefit in the form of deduction of interest element on borrowed funds clearly reveals that the main purpose of the transfer was the reduction of liability to income tax by claiming depreciation with reference to an enhanced cost . (Emphasis supplied) 5. Rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry inquiries were not made. Pages 1 and 2 annexed by the assessee company with its reply dated 6/3/98 do not substantiate the assessee company's contention that necessary inquiries were made during the course of assessment under sec.143(3) and depreciation was allowed by AO after being satisfied that Explanation 3 was not applicable. This is because page 1 reveals only that copies of invoices on sample basis were enclosed at pages 164 to 167 and page 2 is only a note on depreciation claim in respect of lease agreement with M/s. Jaiprakash Industries Ltd. which does not mention anything about the applicability of Explanation 3. The assessee company's contention that material was not furnished to show that the market value of the assets transferred was less than the actual sale consideration paid and therefore, Explanation 3 was not applicable cannot be accepted since the WDV of the assets in the hand of the seller was nil and as discussed above, the facts of the case were such that detailed enquiries to determine the applicability of Explanation 3 were required to be made by the AO. 7. It is, therefore, held that the Assessing Officer failed to apply his mind and make the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order under Section 263 of the Act, impugned order of the Tribunal as well as the documents which have been filed on record by the respondent-assessee. The respondent-assessee, had entered into three lease back agreements with M/s. Jaiprakash Industries Ltd., APSEB and Lloyds Steel Industries Ltd. The Commissioner of Income Tax did not exercise or make any observation in respect of the transaction with Lloyds Steel Industries Ltd. In respect of the transaction with M/s. Jaiprakash Industries Ltd., it was noticed that the assessee had purchased for ₹ 1.50 Crores old sheltering plates, soldiers of channels, scaffolding pipes etc., by making payment of ₹ 1,50,00,000/- to M/s.Jaiprakash Industries Ltd. The said items were leased back to M/s. Jaiprakash Industries Ltd. through a lease agreement, copy of which was filed before the Assessing Officer. As cost of each item purchased was less than ₹ 5000/-, the respondent assessee had claimed 100% depreciation on each items purchased. During the course of the assessment proceedings, the Assessing Officer asked the assessee to justify and explain why 100% depreciation should be allowed in view of the purchase and lease ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by way of these rentals as against claim of depreciation of ₹ 150 lakhs. It is therefore clear that the Assessing Officer, when he raised the said queries had in mind Explanation 3 to Section 43(1) of the Act and whether or not, the same should be applied in the facts of the present case. 9. Explanation 3 to Section 43 (1) reads as under: Section 43. Definitions of certain terms relevant to income from profits and gains of business or profession. ................ ................ Explanation 3 : Where, before the date of acquisition by the assessee, the assets were at any time used by any other person for the purposes of his business or profession and the Assessing Officer is satisfied that the main purpose of the transfer of such assets, directly or indirectly to the assessee, was the reduction of a liability to income-tax (by claiming depreciation with reference to an enhanced cost), the actual cost to the assessee shall be such an amount as the Assessing Officer may, with the previous approval of the Joint Commissioner, determine having regard to all the circumstances of the case. For the aforesaid Explanation to apply, the Assessing Officer has to be satisfied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between '' lack of inquiry'' and '' inadequate inquiry'' . If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of ''lack of inquiry'' that such a course of action would be open. In Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113): '' . . . From a rending of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue . It is not an arbitrary or unchartered power, it can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusion cannot be formed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion ... There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed . We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard.'''' 11. After referring to the above judgment, in Income Tax Officer Vs. D.G. Housing Projects Ltd., [2012], 343 ITR 329 (Delhi), it was observed as under: Thus, in cases of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT vs. Shree Manjunathesware Packing Products and Camphor Works, [1998] 231 ITR 53 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous. It is in this context that the Supreme Court in Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax, [2000] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the remaining assets worth ₹ 49,96,590/-, the depreciation was claimed at 12.5% per annum. 100% depreciation had been claimed on electricity meters, while 12.5% depreciation had been claimed on transformers. In view of the aforesaid position, we think that aforesaid ratio and the reasoning given in the case of M/s. Jaiprakash Industries Ltd. would be equally applicable to the case of APSEB. It would be also appropriate here to refer to the decision of the Delhi High Court in the case of Commissioner of Income Tax Vs. Cosmo Films Ltd. (2011) 338 ITR 266 (Del), which was again a case of sale and lease back and it was held as under: 18. We also note that in Industrial Development Corporation of Orissa Ltd.(supra), the Orissa High Court was dealing with a case which was similar to the one before us where, in place of the Haryana State Electricity Board, it was the Orissa State Electricity Board (OSEB). The said High Court observed that if the sale and lease back agreement between the assessee and the OSEB indicate that the assessee had purchased the plant and machinery from the OSEB for a price and had leased out the same to the OSEB on lease rent, the revenue department c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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