TMI Blog2013 (1) TMI 338X X X X Extracts X X X X X X X X Extracts X X X X ..... Held that:- The claim of the assessee was rejected was on account of discrepancies in the payment of rental by the lessee and received by the assessee and the Revenue had not disputed the purchase by the assessee from BPL Systems and Products Limited. A mere discrepancy in the lease rental payment per se does not negate the claim of the assessee as owner of the machinery. In the circumstances, reverse the order of the Tribunal, thereby allow the claim of the assessee and the Assessing Officer is directed to grant relief of depreciation - in favour of assessee. Enterprising Enterprises Limited - Held that:- The Chartered Accountant certificate dated 26.7.95 states that Tata Model 320 Crane Sl.No. T 3684 and T 3694 belonging to Enterprising Enterprises are free from encumbrance. A reading of this document starting from the invoice in the name of First Leasing Company in the year 1991 to the Chartered Accountant certificate dated 26.7.95 referring to TATA Model Crane, no ground to accept the case of the assessee. The documents produced before the authorities concerned, this had not in any manner helped the assessee in establishing the fact that the assessee had purchased these cran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplain as to why the valuer had requested NEPC to place the name Board mentioning the details "Financed by First Leasing Company". Whatever be the correctness of the claim of the assessee, the document herein show that the transaction, even though the invoices filed by the assessee indicated that there was a sale, yet, in view of the observation made in the inspection report that boards mentioning "Financed by First Leasing Company", Madras be kept, we have no hesitation in confirming the order of the Tribunal holding that the assessee had not discharged the burden of prove - against assessee. Navbharat Industrial Linings & Equipment Limited - Tribunal rejected the assessee's plea that the actual use by the lessee was immaterial and the assessee used the assets in its business of leasing - Held that:- As decided in CIT v. SHAAN FINANCE LIMITED [1998 (3) TMI 8 - SUPREME COURT] to which the assessee is also a party, considering the nature of business of the assessee in leasing out machinery, what is required is that the asset is put to use in the business of the assessee for the purpose of granting 100% depreciation - in favour of assessee. K.K.NAG Limited - Held that:- A r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the supplier of the material was not traceable or for other technical reasons ignoring the facts that clearly indicate that requirements of Section 32 had been satisfied? and 3. Whether the Tribunal was right in holding that the valuation of assets is leased in the case of M/s. Sanghi Textiles Ltd. M/s. Enterprising Enterprises and M/s. Patheja Forgings Auto Parts Mfg. Ltd. are not justifiable?" 2. The appeal arises out of the order of the Tribunal reversing the order of the Commissioner of Income Tax (Appeals) thereby allowing the Revenue's appeal. The issue before this Court are relating to sale and lease back transactions and lease transactions, which are stated as follows:- SALE AND LEASE BACK TRANSACTIONS (1) Asian Electronics Limited (2) BPL Systems and Products Limited (3) Enterprising Enterprises Limited (4) Indian Organic Chemicals Limited (5) Patheja Forgings Auto Parts Manufacturing Limited (6) NEPC MICON Limited (7) Navbharat Industrial Linings Equipment Limited (8) K.K.NAG Limited (9) Universal Starch Chemical Limited DIRECT LEASE (1) IPCA Lab Limited (2) Galaxy Indo Fab 3. In T.C.No. 1145 of 2006 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rely financial transaction. Consequently, the Commissioner of Income Tax (Appeals) accepted the case of the assessee and granted the relief. Aggrieved by this, the Revenue went on appeal before the Income Tax Appellate Tribunal. The Tribunal pointed out that to claim ownership of the assets, the assessee should produce the purchase invoice and mere furnishing of insurance certificate were not sufficient and there was no document to suggest the physical movement of the assets from the lessee to the premises of MSEB. The Tribunal pointed out that when the assessee had not produced purchase invoice, which was a pre requisite document to prove the ownership of the assets not being identified, there was a doubt regarding whether at all there was sale in favour of the assessee. Hence, the Tribunal reversed the order of the Commissioner of Income Tax (Appeals). 6. As far as this claim is concerned, the assessee placed before us the purchase orders, which was stated to have been furnished to the Assessing Officer also. Learned counsel for the assessee also placed before us the evidence regarding payment of monthly lease rental as per the lease rental schedule and contended that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the Assessing Authority as regards the ownership of the machinery by the assessee. The assessee is directed to produce the same before the Assessing Officer. On such production and on satisfaction, the Assessing Officer may pass such orders on the claim in accordance with law. 8. As far as the sale and lease transactions pertaining to BPL Systems and Products Limited is concerned, the Assessing Officer observed that there were discrepancy in the lease rentals paid by lessee and admitted by the assessee in its profits and loss account, which were not reconciled by the assessee. In the circumstances, the Assessing Officer disallowed the claim of depreciation. On appeal, the first Appellate Authority pointed out that the equipment manufactured by the lessee was sold to the assessee, which was the subject matter of lease by the assessee to the various third parties. The first Appellate Authority allowed the case of the assessee which was taken on appeal by the Revenue before the Tribunal. Here too, the Tribunal rejected the assessee's case and reversed the findings of the Commissioner of Income Tax (Appeal). As noted in the earlier transaction, the Revenue does not deny the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mortgaged by M/s. Enterprising Enterprises to SIDBI. The Tribunal pointed out to the certificate issued by the Chartered Accountant dated 26.7.95 and stated that two cranes belonging to Enterprising Enterprises were free from encumbrance. Pointing out to the list of items mortgaged by the lessee to the SIDBI, the Tribunal pointed out that the lessee mortgaged the property as the owner of the property. Hence, the Tribunal rejected the case of the assessee as sale and lease back transactions and held that the transactions was purely one of financial transaction. 10. As far as this disallowance is concerned, the assessee pointed out that the lease agreement is a master agreement. The hypothecation assets was only by the assessee and not done by Enterprising Enterprises as had been wrongly understood by the Tribunal. When the assessee had produced invoices evidencing the sale, the Tribunal committed serious error in rejecting the case of the assessee. In this connection, the assessee placed reliance on the invoice copies, valuation certificate, encumbrance certificate and insurance copies evidencing purchase of the machinery. 11. As far as the document relied on by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Tax (Appeals). Here too, in considering the claim of the assessee, the Commissioner of Income Tax (Appeals) pointed out that there was no evidence available on record to come to the conclusion that the transaction was a financial transaction and not one of sale and lease back transactions. Thus, the Commissioner of Income Tax (Appeals) allowed the claim. On appeal by the Revenue, the Tribunal pointed out that the admitted value of the assets sold was Rs.2,46,60,000/-. The assets were originally acquired by Indian Organs Chemicals Limited during the year 1983 to 1987. The assets involved in this case were an integral part of the whole manufacturing system and it could not be hive off without shutting down the plant for considerable period of time and this was embedded to the earth. Thus, mere production of the purchase invoices of the boiler could not be believed that it was sold to the assessee. There was no document to show the actual delivery of the boiler to the assessee nor there was document from the side of the lessee as regards the delivery. In the circumstances, the Assessing Officer rejected the claim rightly and this was confirmed by the Tribunal. 14. As far as thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im of the assessee on this ground was rejected. In paragraph 9 of the order of the Tribunal, it pointed out that the assessee had not produced original invoice as regards the purchase of the machinery. There was no distinct description of the machinery. The value of the machinery was put at random without giving full details like year of manufacture, model, capacity, written down value, expected life of machinery etc. There was no details given by the assessee regarding the value of the assets sold. Referring to the valuation certificate given herein in support of the claim of the assessee, the Tribunal pointed out that in the absence of the original invoice and the report itself made on best judgment basis and market value arrived tentatively and considering the fact that some of the machineries were not even in working condition and was just scrap, the amount passed on between the parties could not be considered as purchase price of the machinery. Thus, doubting the reasoning of the purchase as one of sale and lease back transaction, the Tribunal came to the conclusion that it was only a finance transaction and actually the assessee lent the money to M/s. Patheja Forgings Auto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a delay by TNEB in recognising its ownership on the assessee on the technical ground that the land on which the wind mill were erected would also have to be transferred before ownership was recognised by the Board, the claim of depreciation was allowed. On appeal, the Tribunal allowed the Revenue's appeal. The Tribunal pointed out that the Officer had categorically given his findings that the windmill alleged to be installed at Nallapuram Village, Palladam Taluk, Coimbatore District, was completely different from the windmill erected at Ketham Village, Coimbatore District. Further even during the financial year 1995-96, there was no windmill installed in the name of the assessee at Nallapuram Village, Palladam Taluk, Coimbatore District. Even the insurance policy was obtained on 19.4.1996, after end of the financial year. In the circumstances, the Tribunal rejected the plea of the assessee. 17. As far as the claim of the assessee is concerned, learned counsel for the assessee placed reliance on the inspection report given by one K.V. Nagarajan, wherein it is stated that the wind mills in Nallurpalayam were in working condition. The inspection report is dated 16.8.95. The inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of the assessee for the purpose of granting 100% depreciation. Applying the law declared by this Court in the decision reported in 231 ITR 308 CIT v. SHAAN FINANCE LIMITED, we have no hesitation in setting aside the order of the Tribunal, thereby directing the Assessing Officer to grant the relief of depreciation. 20. The next item is relating to K.K.NAG Limited. The Assessing Officer pointed out that there was no materials to substantiate the assessee's contention that there was sale and lease back transactions and they were pure and simple finance transaction. The assets covered by alleged lease continued to be at the location of the assessee both prior to and after the date of alleged sale. Apparently, the lessee was in need of funds only for its working capital requirements and not for acquiring any new assets and the transactions have been given colour of sale and lease back transaction. The Commissioner of Income Tax (Appeals) accepted the case of the assessee based on the sale agreement dated 21.7.1995 and lease agreement dated 24.7.1995 and granted the relief. The Tribunal reversed the findings of the Commissioner of Income Tax (Appeals) by holding that there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee submitted that it had furnished the copies of invoices and that the Officer had omitted to take note of ad valorem customs duty paid and the same had not been taken note of as to fix the cost of the machineries. We had perused the documents placed before this Court, which was also placed before the authorities below. In the written submission placed before the Commissioner of Income Tax (Appeals), the assessee pointed out that the Assessing Officer had omitted to include the charges in original cost of the machineries at Rs.86,55,699/-. Taking the actual cost at Rs.75,73,737/-, the Assessing Officer allowed depreciation at 25%. The total cost claimed by the assessee as Rs.1 crore stands explained. In the circumstances, we allow the claim of the assessee in this regard. The order of the Tribunal stands set aside. Accordingly, the Assessing Officer is directed to take the assessment on file and grant the relief. 23. Apart from sale and lease transactions, there are instances of direct lease transaction. One such instances is IPCA Lab Limited. As far as IPCA Lab Limited is concerned, the Assessing Officer pointed out that letter of inquiry was sent to the supplier at the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of IPCA Lab is concerned, when the assessee had not placed necessary materials as regards purchase from the supplier, only course open to the officer was to reject the claim of the assessee to hold the direct lease as finance transaction. In the absence of any material forthcoming from the assesee to support its contention that it was a lease transaction, rightly, the Tribunal restored the order of the Assessing Officer. Being a pure factual finding and as there are no materials to substantiate the claim of the assessee, we have no hesitation in confirming the order of the Tribunal. 28. As already pointed out in preceding paragraph, except for instances viz., Electronics Limited, BPL Systems and Products Limited, Navbharat Industrial Linings Equipment Limited and Universal Starch Chemical Limited, we do not find any justification to grant the relief in respect of the claim made on instances relating to Enterprising Enterprises Limited, Indian Organic Chemicals Limited, Patheja Forgings Auto Parts Manufacturing Limited, NEPC MICON Limited, K.K.NAG Limited and IPCA Lab Limited and Galaxy Indo Fab Limited. 29. In the circumstances, we allow the above Tax Case (Appeal) part ..... X X X X Extracts X X X X X X X X Extracts X X X X
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