TMI Blog2005 (7) TMI 571X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year 2000-01 particularly when 50 per cent depreciation was allowed in the said assessment year. 2. From the above, it may be seen that the only issue in dispute is the disallowance of depreciation on plant and machinery claimed to have been leased out by the assessee. It also appears from the grounds of appeal that the depreciation of Rs. 1,27,65,447 which has been disallowed is inclusive of a sum of Rs. 22,44,853 being 50 per cent of the depreciation in respect of plant and machinery which was leased out in the preceding assessment year and on which 50 per cent depreciation was allowed as the plant and machinery was used for a period less than 180 days during that year. 3. The facts may be stated briefly. During the course of assessment proceedings, the Assessing Officer found that the assessee claimed 100 per cent depreciation on assets leased to M/s. Asian Electronics Ltd. (AEL). The assets comprised of automatic load monitoring systems of the value of Rs 1,05,98,000 manufactured by the aforesaid AEL, which is a sister concern of the assessee-company. The assessee-company purchased the relevant assets on 30-6-2000 and leased back the same to AEL on 1-7-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserved that surrender of the leased assets by the AEL to the assessee-company was not possible in view of para 5( b ) of the agreement dated 10-10-2001 since AEL has no rights to terminate the agreement and had no right to move or shift the equipments. It was specifically provided for that the lease shall continue till it is terminated by TC. The ld. CIT(A) also observed that the relevant goods were directly moved from the premises of AEL at Sylvassa to Andhra Pradesh and thus the property in the equipment was never transferred to the assessee-company. The ld. CIT(A) ultimately confirmed the disallowance of depreciation on the leased assets. He also confirmed the disallowance of 50 per cent depreciation in respect of assets leased out in the preceding assessment year. 5. The ld. counsel, Shri V.H. Patil and Shri Satish Mody, appearing on behalf of the assessee-company forcefully argued before us that the revenue authorities had no basis whatsoever for holding that the SLB transaction was not genuine or was not intended to be acted upon. It is submitted that the entire transaction is absolutely within the four corners of the law. It is pointed out that the assessee-company purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court decision in the case of McDowell Co. Ltd. ( supra ) stands substantially diluted by the subsequent decision of the Supreme Court in the case of Azadi Bachao Andolan ( supra ). The ld. counsel referred to the ITAT Special Bench decision in the case of MEPML ( supra ) and invited our attention to Para 155 of the order, which may be reproduced below : "Both sides relied on several orders of various Benches of the Tribunal in support of their respective stands. In our opinion, there can only be superficial similarity between those cases and the facts of the cases before us. Each case has to be decided on its own merits and on the basis of the peculiar facts obtaining in that case, mere so when the question of genuineness is involved. There can be no pigeon-holing of the facts in the sense that it cannot always be held that if the facts follow a particular pattern, then the conclusion must be the same. Genuineness of a transaction is something which is to be linked to the soul; the facts merely constitute the body and similarity between the bodies does not ipso facto mean that the souls are also identical. We have perused the orders of the various Benches of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n between the assessee-company and its sister concern AEL was neither genuine nor intended to be acted upon. The ld. CIT DR invited our attention to the contradictions between the two lease agreements as brought out by the ld. CIT(A) in his order. It is contended that the SLB transaction between the assessee-company and AEL is not capable of being acted upon on account of the binding stipulation in the agreement between AEL and the TC. It is contended that the SLB transaction is not a genuine commercial transaction, but is only a subterfuge to avoid payment of legitimate tax. It is reiterated by the ld. CIT DR that the relevant transaction of SLB falls under the prohibited category as explained by the ITAT Special Bench in the case of MEPML ( supra ). He relied on the Karnataka High Court decision in the case of Avasarala Automation Ltd. v. Joint CIT [2004] 266 ITR 178. In this case also, the transaction related to SLB and the Karnataka High Court observed that the Assessing Officer is entitled to go into the genuineness or otherwise of a transaction for the purpose of determining whether any attempt is made by the assessee to avoid payment of tax. The assessee who claims de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn to genuineness of the transaction. In our view, each case has to be judged and decided having regard to the peculiar factual position of that case while drawing support from the judicial and legal principles and guidelines which emerge from the various cases available. In our view, the Supreme Court decision in the case of Azadi Bachao Andolan ( supra ) cannot be interpreted in a way so as to conclude that depreciation has to be necessarily allowed even in respect of a transaction which is not genuine and which is not intended to be acted upon by the parties. 8. With this background, the facts of the assessee s case may be put to scrutiny. In our view, the relevant agreements executed between the parties are the most important material on the basis of which this issue is required to be resolved. In our view, the question as to whether the equipment was purchased by the assessee-company at the prevailing market price or not is of not much relevance. The ld. CIT(A) has, therefore, rightly referred to the relevant stipulations in the contractual agree- ments. The lease agreement dated 1-7-2000 between the assessee-company and AEL is for a period of six years commencing from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and the balance lease rentals then remaining unpaid. Any excess/deficit of sales proceeds as compared to the outstanding rentals will be refunded to/recovered from the lessee." The above-mentioned provisions are clear, categorical and leave no doubt that on the expiry of lease period of six years, unless the lease is renewed, the equipment has to be delivered to the lessor i.e., the assessee-company. In the event of default, the assessee-company can take possession of the equipment and dispose it of in whatever way it likes. 9. A reference may now be made to the agreement of lease between AEL and TC. As per clause ( a ) of para 4.2, the lessor i.e., AEL undertakes to erect, transport, test and commission and maintain the equipment during the lease period at the locations approved by the lessee i.e., TC. The period of lease is six years. From the above clause, it may be seen that during the period of lease, AEL has to maintain the equipment. Para 5( b ) stipulates as under : "On completion of fixed lease period of six years, the lease shall continue without maintenance on a consolidated lease rental of Re. 1 per annum for all banks and lessor will have no right to te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the entire facts and circumstances as mentioned above, we see no reason to interfere with the order of the ld. CIT(A) insofar as the disallowance of depreciation on the assets shown to have been purchased and leased back to AEL during the previous year relevant to the present assessment year is concerned. 11. Coming to the further disallowance of depreciation of Rs. 22,44,853 being 50 per cent of the depreciation in respect of plant and machinery put to use by the assessee in the preceding assessment year, in our view, there is hardly any basis for such a disallowance. The transaction originated in the preceding assessment year. During that year, the Assessing Officer allowed depreciation. However, such allowance was restricted to 50 per cent as the relevant assets were put to use for business purposes for a period of less than 180 days. The balance depreciation amounting to 50 per cent was claimed by the assessee during the present assessment year. From the above, it may be seen that the relevant transaction has been held to be genuine by the Assessing Officer and assessee s claim for depreciation has been duly considered and allowed in the preceding assessment year. That ..... X X X X Extracts X X X X X X X X Extracts X X X X
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