TMI Blog2002 (4) TMI 226X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld. Commissioner of Income-tax (Appeals) that M/s. K.P.C.L. was in red and was badly in need of resources to run its business, by itself was not sufficient to conclude that since the alleged intention was of mobilizing resources, it could be concluded the plant was not sold by it and the assessee did not become the owner of the plant thereof. 4. That further, the ld. Commissioner of Income-tax (Appeals) has erred in concluding that, the sale transaction was not an independent of the lease transaction and assuming it was so, even then the assessee was entitled to the claim of depreciation as made as is permissible in the case of sale-cum-lease transaction. 5. The ld. Commissioner of Income-tax (Appeals) has further erred in concluding that the assets were unidentifiable and the invoices made by K.P.C.L. were vague and there was some alleged contradiction in the lease deed. The findings are all based on misconception and are otherwise too, have been arrived at without appreciating the facts of the instant case." 3. The brief facts are that the assessee is a company in which the public are substantially interested. It was incorporated on19-5-1986and is a non-banking finance c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aluation of the assets, the Assessing Officer observed that the WDV in the books of M/s. KPCL had been reduced to nil and the valuation of 1.84 crores could not be taken simply on the basis of the report of the valuer. A reference was made to Explanation 3 to sub-section (1) of section 43 whereby the actual cost shown by the assessee could be substituted by the actual cost as estimated by the Assessing Officer. According to the Assessing Officer the assets in question were affixed to the ground and were not capable of being transferred, shifted and delivered from place to place. It was also noted that the leased machineries were not independent items, but these were part of the power plant system of Raichur Thermal Power Station being managed and run by M/S. KPCL. It was noted by the Assessing Officer that the said project was spread over an area of 3600 acres and the assets purchased and leased back by the assessee formed part of the total plant and machinery of Unit No. III, which was commissioned on30th March, 1991. The Assessing Officer found the basis adopted by the valuer for arriving at the market value as irrelevant. 8. The assessee submitted before the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assets had been acquired for a sum of Rs.1.84 crores and the same represented the fair market value thereof; (iv) The Assessing Officer had not brought any material on record which would show that the value of the asset was not correctly stated as he had not made any attempt to prove the actual cost of the asset; (v) The physical delivery of the asset was not relevant since there had been a constructive delivery. That in a sale-cum-lease transaction there was no physical movement of the equipment and the title passed to the lesser from the supplier on signing of the lease agreement and receiving the lease rent; (vi) Even in the past the assessee-company had entered into similar transactions of sale-cum-leaseback. Further the transaction could not be doubted unless there was valid and sufficient material available to support such a conclusion. As there was a sales invoice, delivery note and lease agreement, these constituted sufficient documentary evidence which could not be rejected; (vii) In the case of CWT v. Arvind Narottam (Individual) [1988] 173 ITR 479 the Hon'ble Supreme Court had held that the real character of a transaction based upon documentary evidence could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ources; (ii) The assessee wanted a lease agreement rather than a financing agreement to enable it to claim depreciation on the assets after purchasing the same from M/s. KPCL; (iii) The assets were "sold" to the assessee for a sum of Rs.1.84 crores on30th March, 1996and on the same date these were leased back over a 10 year lease to M/s. KPCL on payment of non interest bearing security deposit at 45 per cent of the cost of the assets. In other words, M/s. KPCL received a net amount of Rs. 1 crore approx., after adjustment of the security deposit and the first rental; (iv) As per clause II of Schedule I to the lease agreement, M/s. KPCL was to give post-dated cheques for the entire lease rental, which was @ Rs.1,78,492 per month for the first 72 months and Rs.184 per month for the remaining 48 months. In other words, the assessee was to receive a sum of Rs.1.28 crores and odd over a period of 6 years and for the remaining 4 years the total lease rental was Rs.8,832 only; (v) The assessee had heavily relied on the fact that M/s. KPCL was a Government Undertaking and the order of the Karnataka Government exempting the sale of the asset from sales-tax to show the genuineness of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not in dispute and that the sale and lease back transaction had been exempted by the State Government of Karnataka by a statutory notification. According to the learned counsel whatever had been accepted by the State Government could not be objected to by another Department and in the present case of the Central Government. A reference was made to Article 12 of the Constitution of India for the aforesaid submission. 18. The learned counsel further took exception to the observations of the CIT (Appeals) about the "manner" in which the transaction had been conducted. It was his plea that no third party had raised any objection and the transaction/contract between the assessee and the State Government of Karnataka was a valid one. It was emphasized by the learned counsel that the Income-tax Department could not ignore the terms of an agreement between two parties and in the process overlook the legal rights that flowed therefrom. It was also the submission of the learned counsel that the agreement of lease pursuant to the sale was not a sham one. 19. A reference was also made by the learned counsel to para 10 of the order of the CIT (Appeals) wherein there was a discussion on Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be considered/allowed. Reliance was placed on the judgment of the Hon'ble Delhi High Court in the case of Goyal Gases (P.) Ltd. v. CIT[1997] 227 ITR 536. 22. In reply the learned counsel for the appellant stated that the judgment of the Hon'ble Delhi High Court relied upon by the Department was not applicable the same being a matter taken up in reference under section 256(2) and the same, therefore, not constituting a decision on merits. It was the further plea that every sale and lease back transaction had to consider quite identical facts, but in the case of the assessee the clinching factor would be that one of the parties was a State Government. The learned counsel further sought to buttress his arguments by relying on the judgment of the House of Lords in the case of Mac Niven (Inspector of Taxes) v. Westmoreland Investments Ltd. [2001] UKHL. 23. We have examined the rival submissions and have also perused the material on record to which our attention was invited during the course of the hearing. The decisions cited at the bar have also been taken into account. 24. At the outset we would like to observe that every businessman assessee would endeavour to get the best fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n para 9 CIT (Appeals) makes a very odd observation and which is "To this extent the transaction is genuine". It does not need any deliberation to say that the transaction is either genuine or it is not. There can be no transaction, which is part genuine and part sham. 32. The CIT (Appeals) has also spoken about the manner in which the KPCL has entered into the transaction i.e., public notice, tenders, auction etc. The learned counsel has rightly contended that it is an effected party who should object and it is not for the CIT (Appeals) to tell the State Government how to go about it. 33. Another point made by the tax authorities was that KPCL was in the red requiring finance which the assessee provided, but in return it entered into a sale-cum-leaseback transaction so that it could claim substantial amount of depreciation. We would like to say that a State Government Undertaking when financially pressed can fall back on the State Government itself rather than to enter into an arrangement with an assessee with allegations by the Revenue that it is part of a tax avoidance scheme and in case the assessee wants to enter into a transaction for its financial benefit, then we really ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the facts and in the circumstances of the case, the ld. CIT(A)-V, New Delhi was wrong in confirming the action of the Assessing Officer in making the disallowance of Rs.78,095 being claim of depreciation on two-wheelers by restricting the claim of depreciation @ 20 per cent of the WDV as against the claim made by the appellant at 25 per cent on the WDV." "(4) That on the facts and in the circumstances of the case, the ld. CIT(A)-V, New Delhi was wrong in confirming the action of the Assessing Officer in making the disallowance of Rs.4,56,830 being claim of depreciation in respect of the Trucks leased out by the appellant to person who used them in the business of running them on hire by restricting the rate of depreciation @ 25 per cent of the WDV as against the claim of 40 per cent of the WDV made by the appellant." 38. As regards ground No. (3) both the tax authorities took the view that depreciation @ 20 per cent was available, but the learned counsel during the course of the hearing referred to entry No. 1 in Part III of Appendix I pointing out that the rate was 25 per cent in respect of all items of machinery and plant, which were not covered by the other heads, namely, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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