TMI Blog2008 (3) TMI 512X X X X Extracts X X X X X X X X Extracts X X X X ..... e agreement, the lease was commenced from 30-3-1996. As per enquiry made by the Assessing Officer, the said equipment was manufactured by M/s. Gremach CNC Ltd. itself and the assessee purchased this equipment from M/s. Gremach CNC Ltd. for which the assessee has produced the bills. The Assessing Officer doubted the transaction and asked for clarification regarding this sale and lease back transaction. The Assessing Officer also called for clarification regarding justification for selling this asset by M/s. Gremach CNC Ltd. and taking the same on lease from the assessee. The explanation given by the assessee to the Assessing Officer is not satisfactory in the opinion of Assessing Officer and the same was rejected by the Assessing Officer and treated this transaction as financial transaction. According to Assessing Officer, M/s. Gremach CNC Ltd. has not at all used the equipment and there is no question of taking this asset on lease from the assessee. Hence, he treated this transaction as financial transaction and rejected the claim of the depreciation by the assessee. Aggrieved, the assessee went in appeal before the CIT(A). The CIT(A) confirmed the order of the Assessing Officer. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uments, the Assessing Officer has not justified in disallowing the claim of the depreciation. Further, he submitted that the asset was used by M/s. Gremach CNC Ltd. for research and development and for exhibition and the usage was certified by the Chartered Engineer. Further he submitted that the usage of the asset by the lessee is not at all relevant consideration for allowing the claim of depreciation. He submitted that the assessee is in the business of leasing business and once the assessee lease the asset, the assessee is not concerned whether the lessee use the asset or not use the asset. 4. On the other hand, the ld. Departmental Representative submitted that the valuation report submitted by the valuer has no basis. It is only an estimation and it cannot be relied upon. The valuer fixed the value of each unit at Rs. 20,00,000. The basis for such valuation is not coming from the valuation report. Further, the value mentioned in the valuation report that the assets are used and not given how the assets are used and he submitted that no evidential value can be given to the valuation report. Further, he submitted it is quite unnatural that manufacturer after themselves pro- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer has not at all verified with the concerned party viz., lessee regarding the existence of the leased equipment. He came to the conclusion only on the basis of this particular general clause appeared in lease agreement. The main contention of the lower authorities for disallowing the depreciation was the asset was not at all used by the lessee. The usage of the asset by the lessee is irrelevant consideration to grant the depreciation. 6. In our opinion, the real intention of the parties is to be ascertained before concluding whether the transaction was loan transaction or lease back transaction. The genuineness of the transaction could be gathered from the intention of the parties. On the basis of surrounding circumstances, in our opinion, the document produced before the lower authorities show that the manufacturer/lessee intend to sell the impugned asset to the assessee and the lease agreement show, agreement for specified rate of lease rent. The asset was valued by the independent valuer and certified by the Chartered Accountant and after completion of the lease period, the asset is to be re-delivered to the lessor. In this factual position, we are of the opinion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prove nature and scope of the transactions. What the assessing authorities has done is only attempt to pick hole in the agreement and neither agreement nor the transactions have been impeached as they are. It is also disputed by the assessing authority that there was no purchase of equipment and lease back of the same. Evidence of the agreement clearly establishes the purchase and lease back. The equipments have been fully detailed in the invoice and relevant agreements. It is not disputed that the equipment which are leased cannot be removed nor it is the case of revenue that equipments are not detachable. These are the essential facts relating to the instant case which have not been considered by the lower authorities. It is the appreciation of these facts that shows the genuineness of the transactions. In the light of the judgment in the Orissa High Court referred to above, the facts of the present case considered in the light of the valuation report, the agreements, the invoice and the facts taken in the proper perspective genuineness of the transactions cannot be ques-tioned. 9. We find that this issue stands covered in favour of the assessee by the decision of the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st good faith and therefore, the CIT(A) was not justified in stating that it was a device for availing undue benefits under the IT Act. As the assessee-company could not have envisaged that a State Government organization would lure an unsuspecting assessee to enter into any fraudulent transactions and that such premises would tantamount to casting aspersions on the credibility of a Government Organization and accusing the State Government top perpetrator of a fraud, which would be unjust and unfair. Based on the materials submitted before the lower authorities in that case it was submitted on behalf of the assessee that the agreement with RSEB should not be considered as void since the same would mean questioning the bona fide of the State Government by the IT department. It was the further plea that the Assessing Officer was not justified in concluding that there was no utilisation, since the assessee used the assets in its leasing business. Relying upon the decision of the Apex Court in the case of Shaan Finance (P.) Ltd. ( supra ), wherein it was held that where the business of the assessee consists of hiring out machinery and/or where the income derived by the assessee fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation ( 4A ) by which sale and lease back has been accepted by the Legislature. 13. In the case of McDowell Co Ltd. v. CTO [1985] 154 ITR 148 (SC) the ratio laid down is to the effect that each and every transaction can be regarded as colourable device if the transaction results in more reduction of tax liability. After the ratio laid down in the case of Azadi Bachao Andolan ( supra ), principle of McDowell s case is diluted. After dilution of McDowell s case we can allow the claim of the assessee and as long as it is a genuine transaction and resulted in reduction of tax liability arising therefrom, it cannot automatically attract the label of the colourable device as held by the Orissa High Court in Industrial Development Corpn. of Orissa Ltd. s case ( supra ) and Bombay High Court decision in the case of Padamjee Pulp Paper Mills Ltd. v. CIT [1994] 210 ITR 97 and also the judgment of Hon ble Madhya Pradesh High Court in the case of CIT v. Dhayalal Meghji Co. [1998] 149 CTR 126 and the order of this Tribunal in the case of Newdeal Finance Investment Ltd. ( supra ). The power of the authorities to go behind the apparent to find out the real an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore business decision of the assessee on which the department cannot sit in and decide the way the business could be done. It is the assessee s arm chair exclusively. 18. By these SLB assessee derived benefit and it is not automatic to apply rigour of rule of McDowell s. The Assessing Officer should have evaluated the same with reference to whole SLB transaction in one weighing pan and the other one dispensing SLB transaction. The scale which weighted high, the Assessing Officer can easily deduce and find out. This was not done by the Assessing Officer. This exercise was never attempted to by the Assessing Officer. However, be that as it may there was nothing illegitimate about the transaction to treat it as colourable device and hence the second allegation of collusiveness holds no water. 19. Following the decisions of Orissa and Bombay High Courts ( supra ) and M.P. High Court, it is felt that the Special Bench decision of the Tribunal in Mid East Portfolio Management Ltd. v. Dy. CIT [2003] 87 ITD 537 (Bom.) has no support to the revenue s stand. The delivery factor alone could not be isolated from other facts and viewed under the ratio of McDowell s case. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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