Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2007 (7) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2007 (7) TMI 370 - AT - Income TaxDepreciation on leased out assets - interest of commercial expediency - interest on loan for purchase of leased assets - HELD THAT:- It is true that the Expln. 4A to s. 43(1) inserted by the Finance Act, 1996 w.e.f. 1st Oct., 1996 is a recognition of the position that all SLB transactions cannot be held to be motivated only by tax evasion. There can be a genuine SLB transaction. The Explanation only seeks to thwart the move to inflate the value of the asset leased out in order solely to obtain the benefit of 100 per cent depreciation. It applies to an otherwise genuine SLB transaction. If SLB transaction itself is not genuine then there is no need to invoke the Explanation. Deduction on SLB transactions - income in the form of lease rent - offered for tax - In our considered opinion the order of the CIT(A) is totally erroneous, to say the least. The AO, after discussing the facts and circumstances in detail, concluded that the impugned transactions were 'motivated by nothing else but to reduce the taxable income of the profit making company'. We fail to understand how the CIT(A) got the impression from the assessment order that the bona fides of the transactions were not questioned by the AO. Admittedly, the assessee was a manufacturing company and was not a finance company. The impugned transactions were between two sister/group companies. The assessee, a profit making company, tried to reduce its profit by as much as by using a device of taking over the claim of depreciation from a loss making group company, by creating the aforesaid facade of SLB transaction. If we look at the arrangement as a whole it becomes abundantly clear that the transactions had no commercial or economic sense. We have no doubt in our mind that it was not a bona fide arrangement. We entirely agree with the AO that the real intention behind this arrangement was to reduce the tax liability of the assessee company. Manifestly, it was a case of a colourable device. Once we have held that the arrangement itself was not bona fide it becomes totally immaterial that there was no illegality about the transactions. In our considered opinion, the present case is squarely covered by the decision of the Special Bench of Tribunal Mumbai in the case of Mid East Portfolio Management Ltd.[2003 (8) TMI 475 - ITAT MUMBAI] In fact, in the present case the impugned SLB transactions were between two group companies and therefore it stands on a much stronger footing than the case of Mid East Portfolio Management Ltd. We respectfully follow the decision of the Tribunal (SB) in the case of Mid East Portfolio Management Ltd. and hold that the order of the CIT(A) has to be reversed; that the order of the AO has to be restored; and that, as a consequence, the lease rent assessed on 'protective basis' has to be deleted. We order accordingly. In the present case, after examining all the relevant facts and the surrounding circumstances, as discussed in the above paras, we have concluded that the entire arrangement of the impugned SLB transactions was not bona fide, that it was a colourable device, and therefore the assessee's claim could not be allowed. In taking this view we are fortified by the decision of the Supreme Court in the case of Union of India & Ors. vs. Play world Electronics (P) Ltd. & Anr.[1989 (5) TMI 57 - SUPREME COURT]. In this case it was held by the Supreme Court that, "Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by dubious means." The grounds Nos. 6 and 7 are accordingly allowed. Deduction u/s 80-I - income of a profit-making company - inter-unit transfer of material - HELD THAT:- Admittedly, separate books of account are maintained for the old unit at Pimpri and the new unit at Urse, and therefore the major part of expenses would be identifiable either with one unit or the other, but still there would be some expenses, which cannot be so identified. The new unit is eligible for deduction u/s 80-I, which is calculated at a certain percentage of the profit of that unit, and therefore, it is necessary to correctly determine the profit of the new unit. An error in the allocation of expenses to the two units can distort their respective profits. The AO was of the view that the profit of the new unit was artificially inflated by erroneously shifting certain expenses from the new unit to the old unit. We have mentioned, where the approach of the CIT(A) was, in our opinion, inconsistent, and arbitrary. The principles for the allocation of expenses to the old and new units have been clearly laid down, that the expenses, which were specifically incurred for a particular unit, and were directly attributable either to the Pimpri or to the Urse units should be allocated to the respective units. And the 'common unidentifiable expenses' have to be allocated to the old and the new units as per the order of the Tribunal in the assessee's own case for AY 1990-91. Thus, we are of the considered view that entire issue of the allocation of expenses should be remitted back to the file of the CIT(A). He will re-examine the issue in the light of the directions given and will pass a fresh order after giving adequate opportunity of being heard to the assessee. The ground No. 8 is decided accordingly. In the result, the appeal filed by the Department is partly allowed.
|