TMI Blog2007 (10) TMI 348X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer is under obligation to ensure that correct income is brought to tax. The ld. counsel for the assessee, on the other hand, supported the orders of the ld. CIT(A) on this issue. 3. Having carefully considered the arguments of the parties and perusing the materials on record, we find that for the assessment years 1995-96, 1996-97, 1997-98, etc. the Tribunal in the assessee's own case has decided this issue in favour of the assessee by dismissing the revenue's appeal on this account for the elaborate reasons stated in paras 3 to 32 of its order dated 28-2-2006 in ITA Nos. 1008, 1712/Mds./99, 1217, 300/Mds./2000 and 860/Mds./01. Since, admittedly there is no change in the facts and circumstances of the case, in our considered opinion, no interference is called for on our part in the orders of the ld. CIT(A). The contention of the ld. DR was that earlier order of the Tribunal relied upon by the ld. CIT (Appeals) has not become final. But, as long as the said finding of the Tribunal is not disturbed by any process authorized by law, the rights of the assessee will continue to be governed by the Tribunal's order. In this view of the matter, this ground of revenue stands dismis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment and he again retained the said cost of asset in the assessment framed under section 143(3) read with section 250 of the Act. It was the contention of the assessee before the ld. CIT(A) that the Assessing Officer should not have applied the Explanation 4A to section 43(1) of the Act because it was made applicable with effect from 1-10-1996 only. Referring to the decision of the Hon'ble Supreme Court in the case of Smt. Amiya Bala Paul v. CIT [2003] 262 ITR 407 it was contended before the ld. CIT(A) that power of enquiry granted to the Assessing Officer under sections 133(6) and 142(2) does not include the power to refer the matter to the Valuation Officer. The ld. CIT(A) did not find any force in the argument of the assessee and observing that the provisions of section 142A are applicable in the present case and the Assessing Officer's reliance on the Valuation Officer's report is not misplaced, he held that the Assessing Officer was justified in restricting the depreciation on the assets leased to M/s. Ganesh Benzoplast, Mumbai on the basis of the report of the Valuation Officer. Aggrieved by the finding of the ld. CIT(A) the assessee is in appeal before the Tribunal. 8. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ictional High Court in Annamalai Finance Ltd.'s case. It could be seen that the Assessing Officer had disallowed the claim of depreciation as according to him the enquiries made; by him revealed that no such machinery was actually manufactured by M/s. R.M. Machines (P.) Ltd., Kanpur. In so doing he totally ignored the evidence produced by the assessee in the form of installation certificates from the lessee, payment vouchers for the leased assets etc. It was the contention of the ld. counsel before us that in fact the existence of the machinery has been proved by the assessee and no effort was taken by the authorities to examine the leased assets and no basic enquiry was made in this regard and simply on surmises and suspicion the claim for depreciation was found not to be admissible. In the circumstances, we have no hesitation to uphold the claim of the assessee. This ground of appeal is, therefore, allowed. 11. In the result, assessee's appeal in ITA No. 1104/Mds./05 for the assessment year 1995-96 is allowed. 12. Now coming to the appeals by the assessee in ITA Nos. 1105 and 1106/Mds./05 for the assessment years 2001-02 and 2000-01, the first common ground raised is against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the assessee pleaded that the ld. CIT(A) ought to have held that the lease transactions with M/s. Rajinder Pipes Ltd. Mumbai and Ganesh Benzoplast, Mumbai were genuine lease transactions and accordingly he ought to have deleted the addition of Rs. 63,62,553 (assessment year 2001-02) and Rs. 1,19,52,914 (assessment year 2000-01). It was the contention of the assessee before the ld. CIT(A) that the first appellate authority in his order dated 30-3-1999 for the earlier assessment years 1995-96 to 1997-98 had allowed depreciation on certain assets but the Assessing Officer has treated those lease transactions as finance transactions. Since according to the assessee the facts and circumstances of the case are the same, it was pleaded by the assessee's counsel that the Assessing Officer was not justified in disallowing the claim by making an addition by way of notional interest on deemed loan transactions. It was the contention of the assessee's counsel before us that the ld. CIT(A) ought to have appreciated that even the debt due from M/s. Rajinder Pipes Ltd., Mumbai and M/s. Ganesh Benzoplast, Mumbai have subsequently become bad and irrecoverable and the entire amount was written-off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. Judicial Member. But I am unable to agree with him fully with his proposed order. In ITA Nos. 1104, 1105 and 1106, I disagree with the issues discussed hereunder. In ITA No. 1104/Mds./2005 filed by the assessee for the assessment year 1995-96, the assessee is aggrieved against the disallowance of depreciation of Rs. 33,90,172 on the assets leased to M/s. Ganesh Benzoplast, Mumbai. 2. The ld. Judicial Member allowed the above appeal of the assessee placing reliance on the judgment of the Hon'ble Jurisdictional High Court in the case of Annamalai Finance Ltd. 3. In this case, the question that was before the High Court for consideration is:- "Whether on the facts and circumstances of the case, the Tribunal was right in holding that the apparent consideration should be accepted by the Assessing Officer as the cost in a sale and lease back transaction although the amounts specified as lease amounts were not received by the assessee?" The High Court has held as follows:- "Strictly speaking 'apparent consideration' as held by the Bombay High Court in Polycon Paper Ltd. v. Union of India (253 ITR 182) would mean the whole or part of the consideration for such transfer whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT [1954] 26 ITR 595 (Lahore); Guzdar Kajora Coal Mines Ltd. v. CIT [1972] 85 ITR 599 (SC); G. Vijayaranga Mudaliar v. CIT [1963] 47 ITR 853 (Mad.) Craddicj v. Zevo Finance Co. Ltd. 27 Tax Cas. 267 (HL); Motiram Roshan Lal Coal Co. v. CIT [1933] 1 ITR 329 (Pat.); R.B. Bansilal Abirchand Spg. Wvg. Mills Ltd v. CIT [1970] 75 ITR 260 (Bom.)]. This Explanation 3 nowhere speaks of the market value being determined by the Assessing Officer but it speaks of the "actual cost" being determined by the Assessing Officer with the approval of the Dy. Commissioner having regard to all the circumstances of a case-Ginners Pressers (P.) Ltd. v. CIT [1978] 113 ITR 616 (Bom.). For this purpose I also rely on the judgment of the Hon'ble Supreme Court in the case of CIT v. Durga Prasad More [1971] 82 ITR 540 wherein it was held that:- "that though an apparent statement must be considered real until it was shown that there were reasons to believe that the apparent was not the real, in a case where a party relied on self-serving recitals in documents, it was for that party to establish the truth of those recitals: the taxing authorities were entitled to look into the surrounding circumstances to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein the Tribunal vide order dated 28-2-2006 has held that:- "107. Depreciation claimed on assets leased to M/s. Rajinder Pipes Ltd.- In this case, the assessee-company claimed depreciation of Suction Blower with allied systems bought from M/s R.M. Machinery Pvt. Ltd., Kanpur for a value of Rs. 51.50 lakhs and leased to M/s. Rajinder Pipes Ltd. The Assessing Officer on the basis of his enquiry held that there was no such machinery manufactured and supplied and the supplier M/s. R.M. Machinery (P.) Ltd. did not have the infrastructure and technical personnel to manufacture such machinery. 108. Upon assessee's appeal, the learned Commissioner of Income-tax (Appeals) held as under:- 'I find that the Assessing Officer had not categorically proved that the asset was non-existent. The fact of purchase of machinery is to be verified vis-a-vis the letters of the supplier and the result of the enquiry is to be put to the assessee for rebuttal. Further enquiry is to be carried on to verify the mode of payment of the lease consideration and the mode of repayments. Hence I set aside this issue to the files of the Assessing Officer to come to proper conclusion after necessary enquiry as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ./05, ITA Nos. 1105 and 1106/Mds./05 are partly allowed for statistical purpose. The revenue's appeal in ITA Nos. 1218 to 1220/Mds./2005 are dismissed. Per N. Vijayakumaran, Judicial Member.- ITA No. 1104/Mds./2005: (1) Whether on the facts and circumstances of the case the CIT (Appeals) is justified in confirming the action of the Assessing Officer in determining the value of the assets and recalculate the depreciation which is a subject-matter of lease transaction with M/s. Ganesh Benzoplast? (2) Whether on the facts and circumstances of the case, the CIT (Appeals) is justified in confirming the action of the Assessing Officer in disallowing the claim of depreciation on the asset leased to M/s. Rajinder Pipes Ltd., Mumbai? ITA Nos. 1105 and 1106/Mds./05: (1) Whether on the facts and circumstances of the case, the CIT (Appeals) is justified in confirming the action of the Assessing Officer in making the addition towards interest on transaction treated by Assessing Officer as loan transaction? THIRD MEMBER ORDER Per M.K. Chaturvedi, Vice-President.- These appeals came before me as a Third Member to express my opinion on the following questions:- ITA No. 1104 (Mds. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... la Paul. In this case the Hon'ble Apex Court has held that the Assessing Officer is precluded from referring to DVO the question of the cost of construction of a house property built by the assessee. The power of the Assessing Officer under sections 131(1) and 133(6) is distinct from and does not include the power to refer a matter to the DVO under section 55A. A report of the DVO under section 55A may be considered by the Assessing Officer as a piece of evidence if it is relevant. However, the power of enquiry granted to an Assessing Officer under sections 133(5) and 142(2) does not include the power to refer the matter to the Valuation Officer for an enquiry by the latter. If the power to refer any dispute to the DVO were already available in sections 131(1), 133(6) and 142(2), there was no need to specifically empower the Assessing Officer to do so in certain circumstances under section 55A. Section 55A having expressly set out the circumstances under and the purposes for which a reference can be made to a DVO, there is no question of the Assessing Officer invoking the general powers of enquiry to make a reference in different circumstances and for other purposes. Such a referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to invoke the prescription of the aforesaid Explanation it is sine qua non that the Assessing Officer must be satisfied that the main purpose of transfer of such assets was reduction of liability to income-tax. There is absolutely no such finding in the facts of the present case. 4. Now it emerges out of the aforesaid discussion that for making valuation of the assets, the Assessing Officer has with him the valuation as declared by the assessee based on the apparent consideration. The other value was based on the DVO's report dated 27-1-1998 amounting to Rs. 63,92,750. This value was disputed in appeal. The matter was set aside. It was pleaded on behalf of the assessee vide letter dated 10-3-1998 that a number of items forming integral parts of the machinery were not considered while arriving at the value of the machinery. These items were stated to be of the nature of shell plates, angular plates, etc. During the course of the proceedings carried out in connection with the set aside assessment the assessee-company furnished a copy of the letter addressed to the assessee-company by M/s. Ganesh Benzoplast, wherein it was mentioned that the valuation cell had not considered a numb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cage indicator motor and ducting systems bought from M/s. R.M. Machines (P.) Ltd., Kanpur for Rs. 51.50 lakhs and leased out to M/s. Rajinder Pipes Ltd., Mumbai. The Assessing Officer disallowed the assessee's claim on the ground that as per his enquiry no machinery was actually manufactured by M/s. R.M. Machines (P.) Ltd. Besides, M/s. Rajinder Pipes Ltd. did not reflect in its accounts any plant and machinery acquired either through purchase or by lease during the previous year 1994-95 onwards. The Commissioner (Appeals) confirmed the disallowance. Before the Tribunal the assessee did produce evidence in the form of installation certificate from the lessee, payment vouchers for the leased assets, etc. According to the learned Judicial Member the factum as to the existence of the machinery was proved beyond the shadow of doubt and no effort was taken by the revenue to examine the leased assets. No basic enquiry was made in this regard and the claim for depreciation was disallowed on the basis of surmises and suspicion. As such he allowed the relief on this count, whereas the learned Accountant Member followed the order of the Tribunal rendered for the assessment year 1995-96 in IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te the depreciation which is subject-matter of lease transaction with M/s. Ganesh Benzoplast? (2) Whether on the facts and circumstances of the case, the CIT(A) is justified in confirming the action of the Assessing Officer in disallowing the claim of depreciation on the asset leased to M/s. Rajinder Pipes Ltd., Mumbai? ITA Nos. 1105 and 1106/Mds./05: Whether on the facts and circumstances of the case, the CIT(A) is justified in confirming the action of the Assessing Officer in making the addition towards interest on transaction treated by the Assessing Officer as loan transaction? 3. With regard to the first question in ITA No. 1104/Mds./2005 the ld. Third Member agreed with the Judicial Member, whereas he concurred with the decision of the Accountant Member in respect of the second question. 4. For the assessment years 2000-01 and 2001-02 there was yet another common issue raised by the revenue relating to estimated expenditure disallowed in earning the income exempted under section 10(33) of the Act. On this issue both the Members agreed that the common ground raised by the revenue is to be dismissed. 5. In the result, assessee's appeal in ITA No. 1104/Mds./05 for th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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